STNE

We rate StoneCo Ltd. (STNE) as a Buy with a composite score of 69.3/100 at a current price of $17.09. The stock scores above average across the majority of our six quantitative factors and ranks #114 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in momentum (83th percentile) and quality (78th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (61/100), High uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

StoneCo Ltd. holds a top-quartile position (#12 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 69.3/100 places it at rank #114 in our full 7,333-stock universe. At $2.5B in market capitalization, StoneCo Ltd. is a mid-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (83th percentile), revenue contraction of -12% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 73% (+13.8pp vs sector) narrow to operating margins of 17% (+13.4pp vs sector) and net margins of -11.8%, yielding a gross-to-net conversion rate of -16%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $17.09, StoneCo Ltd. is trading near fair value based on current fundamentals. Our value factor score of 60/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at P/B of 2.4x, P/S of 0.6x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a High uncertainty rating to StoneCo Ltd.. Key risk factors include current negative profitability (net margin -11.8%), the combination of leverage (72% D/E) and thin margins (-11.8% net) amplifies downside risk. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: current negative profitability (net margin -11.8%); the combination of leverage (72% D/E) and thin margins (-11.8% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 65th percentile and quality factor at the 78th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 73% provide a buffer against cost pressures; above-average stability (65th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate StoneCo Ltd.'s capital allocation as Poor. Key concerns include low returns on equity (-51.2%), negative profitability, weak asset returns (ROA -11.0%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — StoneCo Ltd. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, StoneCo Ltd. receives a Buy rating with a composite score of 69.3/100 (rank #114 of 7,333). Our quantitative framework assigns a Narrow Moat (61/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 69/100.

Our analysis supports a constructive view on StoneCo Ltd.. The combination of identifiable competitive advantages, high uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.