Buying StoneCo 60% Cheaper Than Warren Buffett — At a P/E of 5.6x?
Let me start with a confession. When Warren Buffett bought 14 million shares of StoneCo at $24 in October 2018, I thought it was one of his more curious bets. A Brazilian acquirer in a country famous for FX volatility, political dysfunction, and 15% interest rates? Yet here we are, in May 2026, and the same business that Berkshire once championed trades at $9.74 per share — a 60% discount to that IPO price almost eight years later. The 52-week range tells the story: from $19.95 down to $9.66. The stock now sits within pennies of its 52-week low after dropping over 25% in the past month alone.
And yet — and this is where my contrarian antenna starts twitching — the company just reported Q1 2026 revenue of BRL 3.6 billion (+6% YoY), adjusted EPS of BRL 2.19 (+15% YoY), Return on Equity expanding to 26%, and just paid out a $2.53 per share extraordinary dividend (roughly 26% of the current share price) from the Linx software divestiture. They bought back 39 million shares over the trailing twelve months. The trailing P/E ratio sits at roughly 5.6x. Five. Point. Six.
This is exactly the kind of setup my Fair PE framework was built to identify: a high-quality, founder-led, capital-light compounder that has been thrown out with the Brazilian macro bathwater. In this article, I want to walk you through why StoneCo (NASDAQ: STNE) is now a meaningful position in my Haas invest4 innovation fund (invest4.net), why I believe the fair P/E is around 19x, and how I get to an upside of roughly 70% per year over the next three years.
The investment case in one sentence: A founder-controlled Brazilian fintech with structurally improving margins, a credit business compounding at 25-33% per quarter, an active capital return program, and a fair P/E of 19x — trading at 5.6x because the market is fixated on a Brazilian Selic rate that is now finally rolling over.
Grab a coffee. This one is worth your time.
1. Product, Business Model, Brand & Moat
What StoneCo Actually Does
When most investors hear “Brazilian payments company,” they picture a card-swiping terminal and not much else. That mental model is roughly five years out of date. StoneCo today is essentially three businesses bundled together:
Payments (the original core). StoneCo provides card acquiring, PIX (Brazil’s instant payments rail), and POS hardware to roughly 4.7 million merchants — predominantly Micro, Small, and Medium Businesses (MSMBs). Their brand architecture is straightforward: Stone serves small and medium businesses with integrated terminal, business banking, and management software in one app. Ton targets micro-entrepreneurs and freelancers with modern card machines and a “Super Account.” Pagar.me serves online sellers and large enterprises. In Q1 2026, MSMB Total Payment Volume (TPV) was BRL 137 billion (+3% YoY in a tough environment), and management’s three-year plan still targets meaningful TPV expansion to 2027.
Banking. This is the segment I find most underappreciated. StoneCo’s banking active client base hit 3.7 million at year-end 2025 (+21% YoY), and client deposits grew 27% YoY to BRL 11.1 billion. Deposits are the silent compounder here — they’re a low-cost funding base that drives both float income and credit underwriting. On the Q1 2026 call, CTO Diego Salgado disclosed that StoneCo has reduced its total cost of funding from 100% of CDI in early 2025 to around 87% more recently. In a country where every basis point of funding cost gets amplified by Selic at 14.5%, this is enormous.
Credit. This is the swing factor for the next three years. The loan portfolio grew 14% sequentially in Q1 2026 to BRL 3.2 billion, credit revenue grew 25%, and StoneCo is layering credit on top of merchants whose entire transaction history they can see in real time. This is the “toll booth on commerce” model that I love — they don’t have to win a customer to lend to them; they already process the customer’s revenue.
The Business Model — Why I Call This a Brazilian Toll-Booth
The beauty of StoneCo’s model is that every BRL of TPV flowing through a Stone terminal touches at least one fee event, and increasingly two or three. The merchant pays a take rate on payments (around 1.0-1.2% net), keeps deposits in the Stone digital bank (float income), takes a working-capital loan against future receivables (credit revenue at high spreads), and runs the back office on Stone software. Each new product attached to a merchant doubles or triples the lifetime value with effectively zero incremental customer acquisition cost.
Management calls this “heavy users” — clients using three or more financial products. That cohort jumped from 26% to 38% of the MSMB base in just one year. This is the SaaS-like cross-sell layer building on top of the payments rails, and it’s the structural reason why ROE has expanded to 26% even with credit provisions weighing on results.
Brand
Stone is one of the genuinely respected merchant-facing brands in Brazil. The company built its identity on a hyper-local distribution model with “Stone Hubs” in cities across the country, combined with on-demand white-glove customer service that is almost unheard of in Brazilian banking. The 2018 IPO was the most-hyped emerging-markets fintech listing of that year, attracting not just Berkshire but also Ant Financial (Jack Ma) and the Walton family office. Brand-wise, Stone sits in a different perceptual category than the entrenched bank acquirers (Cielo, Rede/Itaú, Getnet/Santander) — it’s the merchant-friendly disruptor. Whether the brand justifies a premium over PagSeguro is up for debate, but it’s clearly stronger than any incumbent.
Moat
This is where I have to be intellectually honest. StoneCo’s moat is mid-strength — solid but not unassailable.
The positive moat layers are real: regulatory licensing (acquirer, sub-acquirer, digital bank, broker-dealer through DTVM), data advantage (real-time transaction data for credit decisioning), customer switching costs (a merchant who runs payments + banking + software on Stone faces real friction switching), and distribution density (the Stone Hubs and field salesforce).
The moat weaknesses are also real: PIX is a public rail that has crushed take rates on parts of the volume mix; Nubank, Mercado Pago, and PagSeguro are well-funded competitors all targeting the same MSMB segment; and the credit business carries real underwriting risk (StoneCo had a notorious blow-up in 2021 from the Brazilian national registry data issue). The Q1 2026 churn problem — concentrated in newer 2025 clients — is also a signal that competitive pressure on pricing is real.
So this is not Visa. But it doesn’t need to be Visa. It needs to be a sticky-enough Brazilian MSMB platform with structurally improving unit economics — and that thesis is intact.
2. Market: Big, Growing, Cyclical, But Less Politically Risky Than You Think
Size and growth. Brazil’s electronic payments sector has grown at roughly a 19% CAGR over the past five years. The country has more than 210 million people, but cash still represents a meaningful share of small-merchant transactions — meaning there is significant runway left in the digital migration. The Brazilian retail banking market alone is forecast to grow at roughly 10-11% CAGR through 2032. PIX, far from being a threat, has expanded the overall pie by formalizing transactions that previously sat outside the card networks entirely. StoneCo benefits both by routing PIX payments and by gaining banking deposits from PIX inflows.
MSMB segment specifically. This is the part of the market traditional Brazilian banks have always neglected. Roughly 30% of Brazilian GDP runs through MSMBs, yet they were historically treated as second-class customers by Itaú, Bradesco, and Santander. The fintech disruption — Stone, PagSeguro, Mercado Pago, and Nubank — has effectively re-architected the experience for these merchants over the past decade.
Political intervention risk. Lower than the headlines suggest. Yes, Brazil has Lula. Yes, the central bank had to fight a politically uncomfortable rate hike cycle. But the institutional independence of the Banco Central do Brasil under Gabriel Galípolo has actually held up well. The bigger political wildcard is competitor-related: TikTok recently sought a license to offer credit in Brazil. That’s a competitive event, not a regulatory one. CADE approved the Linx sale to TOTVS without restrictions. The PIX system, despite being state-built, has been remarkably neutral as infrastructure.
Cyclicality. This is real. StoneCo’s earnings are exposed to (a) Brazilian GDP growth, (b) the Selic rate (which directly drives both funding costs and credit demand), and (c) the real-dollar exchange rate (since the stock prices in USD). Q1 2026 GDP growth in Brazil is now projected at just 1.83% for the year, well below the 3.2% prior-period average. That weakness explains much of the Q1 churn and credit deterioration. But here’s the contrarian point: cyclicality cuts both ways. We are right now near the bottom of the cycle.
3. Culture and Management: Founder-Led, Long-Term, Skin in the Game
This section matters more to me than almost any other in the analysis, because in emerging markets, governance is everything.
The founders. André Street and Eduardo Pontes built StoneCo from scratch in 2012 after running an earlier payments business called Braspag. André Street still controls a majority of voting power through Class B super-voting shares via HR Holdings. This is a founder who has been in Brazilian payments for over two decades, has been through a brutal credit crisis in 2021, and has guided the company through a Linx acquisition, a Linx divestiture, the COVID volatility, the 2021 stock crash from $90+ to single digits, and now the current macro cycle. André Street has consistently demonstrated long-term thinking — and importantly, he has consistently chosen to return capital rather than empire-build.
The CEO and senior team. Pedro Zinner has been steady through this cycle, with Mateus Schwening as VP Finance and Diego Salgado as Chief Treasury Officer. Their commentary on the Q1 2026 call was refreshingly honest: they admitted churn was concentrated in the newer 2025 cohort, admitted credit provisions had to step up, and laid out specific operational fixes (simpler product bundles, more transparent pricing, adjusted sales incentives).
Capital allocation track record. This is where Stone separates itself from the typical Brazilian fintech. Over the trailing twelve months they have:
Repurchased over BRL 2.4 billion in shares, reducing share count by nearly 40 million
Divested Linx to TOTVS for over BRL 3 billion (cleaning up the 2021 acquisition that never quite worked)
Returned $2.53 per share (R$3.08 billion) as a one-time extraordinary dividend on May 4, 2026
Expanded the LTIP pool by 3.8 million shares (a modest dilution that maintains alignment)
Selling Linx at a respectable price, returning the proceeds, and shrinking the share count — that is textbook intelligent capital allocation. The 2026 guidance, importantly, does not include any benefit from the Linx distribution, meaning the operating business is delivering BRL 10.8-11.4 EPS on its own.
Cultural assessment. Entrepreneurial: yes, deeply so. Long-term strategy: yes — they took the pain of restructuring after 2021, sold Linx when it made sense, and have stayed focused on the MSMB merchant. This is exactly the founder-led, contrarian-friendly profile I look for.
4. Financials & Margins
Let me give you the numbers that matter, drawing from the most recent disclosures.
Revenue Growth.
FY 2025 Total Revenue: BRL 14+ billion (full year), +13% YoY in Q4 2025
Q1 2026 Revenue: BRL 3.58 billion (+6% YoY)
2026 guidance: Adjusted Gross Profit BRL 6.6-7.0 billion (+5-11% YoY from BRL 6.3 billion in 2025)
Earnings Growth.
FY 2025 Adjusted EPS: BRL 9.71 (+33.6% YoY)
Q1 2026 Adjusted EPS: BRL 2.19 (+15% YoY)
2026 Adjusted EPS guidance: BRL 10.8-11.4 (+11-17% YoY)
Margins.
Adjusted Net Margin: ~18% (Q3 2025: 18.0%; under pressure in Q1 2026 due to credit provisions)
Adjusted Gross Margin (Q1 2026): 41.6% (compressed from prior periods due to higher credit-loss provisions and operating costs)
Return on Equity (ROE): 26% as of Q4 2025 — and this is the metric that really should make value investors sit up
EBITDA margin (continuing operations): in the high-20s/low-30s range
Capital structure and cash.
Cash and equivalents (Q1 2026): R$6.09 billion
Adjusted Net Cash position: ~BRL 2.6 billion (pre-Linx distribution)
Active share count: roughly 244 million shares, down from over 300 million a few years ago thanks to consistent buybacks
Recent operational metrics worth highlighting:
MSMB client base: 4.7 million (+15% YoY)
Banking active clients: 3.7 million (+21% YoY)
Client deposits: BRL 11.1 billion (+27% YoY)
Credit portfolio: BRL 3.2 billion (+14% QoQ in Q1 2026)
Credit revenue: +25% YoY in Q1 2026
The honest watch-out. Cost of risk in Q1 2026 jumped to 21.9%, and BRL 166 million in credit-loss provisions hit the P&L. NPL 15-90 days rose to 4.43%. This is the single biggest reason the stock is where it is. Management expects gradual improvement as 2026 progresses and as the early-2025 vintage works through the book. If you want to be a holder here, you need to be willing to take the view that Brazilian credit conditions improve into 2027 — which is precisely the bet that a falling Selic rate sets up.
5. Valuation: My Fair PE Model Says This Is a 19x Business Trading at 5.6x
This is where the analysis becomes interesting. My Fair PE framework — which I’ve used now for hundreds of stocks at investresearch.net — assigns a fair P/E multiple based on a combination of growth, profitability, business quality, capital allocation, and balance-sheet strength. The output is not a price target, it’s a quality-adjusted earnings multiple the business should trade at over a normal cycle.
For StoneCo, my work points to a Fair PE of 19x.
Here is how I get there:
Growth component: A business growing adjusted EPS at +15% annually over multiple years deserves a baseline multiple in the high teens
Profitability component: 26% ROE, expanding margins, asset-light model — this adds 1-2 turns
Founder/capital allocation component: André Street’s track record + active buybacks + Linx divestiture + extraordinary dividend = the upper end of governance scoring
Discount components: Brazilian macro/FX risk, credit cyclicality, competitive pressure on take rates — these compress the multiple back down to 19x rather than 22-24x
The math:
Current FY 2026 guidance midpoint: BRL 11.1 adjusted EPS
At USD/BRL ~5.7, that’s roughly $1.95 USD adjusted EPS
Projected FY 2028 EPS (assuming guidance compounding and Selic tailwind): ~$2.50 USD
Fair PE of 19x × $2.50 = fair value of approximately $47.50 per share by 2028
Current price: $9.74
Implied total upside: roughly 390% over three years → approximately 70% per year compounded
Let me be clear: this number sounds aggressive because the starting point is aggressive. A stock trading at 5.6x trailing earnings, with EPS growth in the teens and a 26% ROE, simply cannot stay at 5.6x for three years unless the entire business breaks. Either the earnings collapse (which is the bear case the market is currently pricing) or the multiple re-rates toward what the cash flows actually deserve. I am betting on the latter.
For sanity-checking: the average analyst 12-month price target is currently $19.72, with a high estimate of $24.43. Even the analyst consensus implies more than 100% upside over twelve months — and analysts have lowered targets aggressively in recent weeks (Citi to Neutral, Goldman to Neutral at $14, BTIG to $15, JPMorgan to $20). My Fair PE work is more bullish than the sell-side, but on the same side of the trade.
6. Risks: Why Does This Opportunity Exist?
Whenever I find something trading at 5.6x, the first question I ask myself is: “Why? Who is selling, and what do they know that I don’t?” Here is my honest list.
1. The Brazilian rate cycle is the dominant variable. The Selic rate hit 15% in mid-2025 and only began cutting in March 2026, reaching 14.5% after the April meeting. Capital Economics expects the Selic at 11.25% by end-2026. Markets are still pricing 12.25% by year-end. Every 100bp of Selic cuts directly improves StoneCo’s spread on credit and reduces the discount rate applied to its earnings stream. The risk is that the Middle East conflict and oil price pressures cause the Banco Central to hold longer than expected.
2. Credit quality deterioration. This is the real-time pain point. Cost of risk at 21.9% and rising NPLs are why Q1 2026 disappointed. If Brazilian unemployment climbs or if Stone’s underwriting was too aggressive in the 2025 vintage, the credit business could become a profit drag rather than a profit engine for another two or three quarters. I am pricing this in; the market may be over-pricing it.
3. Take-rate compression and competitive pressure. PIX continues to erode card-take economics. PagSeguro, Mercado Pago, and Nubank are all aggressively targeting the same MSMB segment. The Q1 2026 churn problem is the most concrete evidence yet that pricing pressure is biting.
4. FX risk. A weakening real is a direct hit to USD-reported EPS. The reverse, of course, is also true — and a falling Selic typically supports the real once the cycle is established.
5. Recent analyst downgrades and momentum. Citi downgraded to Neutral citing volume deceleration. The 200-day moving average sits at $15.65 versus a spot price of $9.74 — the stock has been in a relentless downtrend. Technical traders will sell rallies until the trend breaks.
6. The 2025 institutional outflows. Atmos Capital exited 100% of their position (~8.94 million shares) in Q4 2025. Ninety One UK exited 100% (~4.19 million shares) in Q1 2026. When prestigious Brazilian and emerging-markets funds head for the exits, the stock has nowhere to go but down on flow. The reverse is also true once the flows stabilize.
Why the opportunity exists in one paragraph: A combination of (a) high Selic crushing the earnings multiple investors are willing to pay for Brazilian financials, (b) credit cycle pain showing up exactly when investors least want to see it, (c) institutional outflows from EM funds liquidating positions, and (d) the post-Linx-distribution mechanical share-price drop on May 4 of roughly $2.53 — has compressed a high-quality compounder into bargain-bin territory. This is precisely the contrarian setup I look for in the Haas invest4 innovation fund.
7. Latest News and Earnings
The last 90 days have been packed with relevant information flow.
Q1 2026 Earnings (released May 14, 2026). Revenue BRL 3.58 billion (beat consensus of BRL 3.55 billion). Adjusted EPS BRL 2.19 (slightly below consensus of BRL 2.28). Basic EPS from continuing operations: BRL 7.17 vs BRL 1.83 in Q1 2025 (driven heavily by a large deferred tax benefit). Cash from operating activities increased 487% YoY. The stock initially traded up in aftermarket but was down 6.65% in the subsequent session on the credit quality concerns. Full-year guidance maintained — performance weighted to H2.
Linx Sale Closed (February 27, 2026). CADE approved without restrictions. TOTVS paid over BRL 3 billion. This cleaned up the 2021 software acquisition that never quite delivered on its promise. Stone continues to serve clients’ software needs through partnerships and native horizontal solutions.
Extraordinary Dividend ($2.53/share, paid May 4, 2026). Funded by the Linx proceeds. Record date April 24, payment date May 4. A one-time event, not a new dividend policy. Total payout ~R$3.08 billion. At the current price, this represents a 26% return of capital in a single distribution.
Brazilian Macro Backdrop.
March 18, 2026: Selic cut from 15.0% to 14.75% — first cut in nearly two years
April 29, 2026: Selic cut to 14.50%
The Banco Central raised its 2026 inflation forecast to 4.6% (Q4 2027 view: 3.5%)
The Middle East conflict and oil prices remain the wildcard
Sell-side actions.
Citi: Downgraded to Neutral on May 15 citing volume deceleration
Goldman Sachs: Downgraded to Neutral with $14 PT
BTIG: PT lowered to $15 from $22
JPMorgan: PT lowered to $20 from $21
BofA: PT lowered to $23 from $25 (Buy maintained)
Susquehanna: Buy maintained
Insider and ownership signals. Net insider selling of only $0.1 million over the trailing three months — effectively neutral. André Street’s control position is unchanged. Atmos Capital and Ninety One UK liquidated their full positions in Q4 2025 / Q1 2026.
Brazilian X/Twitter chatter. The Brazilian retail investor community on X has been notably bullish on STNE in recent weeks, citing the extraordinary dividend, the share buyback continuation, the early-cycle bet on Selic cuts, and the post-Linx focus on the high-ROE core business. The narrative is shifting from “Brazilian fintech with credit problems” to “highest-ROE Brazilian financial trading at single-digit P/E.”
8. Conclusion: The Investment Case and the Catalysts
Let me put the whole thesis together in one place.
I am buying a Brazilian, founder-controlled, capital-light fintech with a 26% ROE, growing earnings 15-33% annually, returning capital aggressively to shareholders, with 4.7 million MSMB merchants, 3.7 million banking clients, and a credit book compounding at 25%+ — at 5.6x trailing earnings. The market is fixated on a credit cycle, a Selic rate, and FX moves that I believe are all at or near their pain peak. My Fair PE work points to 19x as the appropriate quality-adjusted multiple, implying roughly 70% annualized upside over three years to ~$47.50 per share.
The specific catalysts that re-rate the stock from here:
Falling Selic rate. The biggest catalyst, full stop. Markets expect 275bp of total cuts to 12.25% by year-end 2026. Capital Economics is at 11.25%. Every cut directly compresses Stone’s funding cost (already down from 100% to 87% of CDI) and reduces the equity risk premium applied to Brazilian financials. This is the single most-likely-to-occur catalyst in the next 12-24 months.
Credit cycle stabilization. Management has guided for gradual improvement in cost of risk over the course of 2026. If NPL 15-90 starts ticking down by Q3, the market re-rates the credit business from “problem” to “growth engine.”
Continued share buybacks. With $2.6 billion in adjusted net cash even after the Linx distribution, the buyback program has plenty of fuel. At single-digit P/E, every dollar repurchased is highly accretive.
The H2 2026 reacceleration management has guided for. Comp comparisons get easier, churn fixes start to flow through, credit revenue compounds. If H2 prints meaningfully better than H1 — which is what management explicitly told us to expect — sentiment flips.
Brazilian equity re-rating broadly. As Selic falls, Brazilian equities historically re-rate as a group. Stone is the highest-quality, highest-ROE name in the MSMB-fintech basket and would be a primary beneficiary.
Potential takeover speculation. A founder-controlled business at 5.6x trailing EPS, with strategic value to multiple acquirers (Itaú, Mercado Libre, even a return engagement from Berkshire?) is the kind of asset that does not stay this cheap forever.
Stay disciplined. Stay contrarian. And don’t let the price chart tell you what the business is worth.
Risk Disclaimer
This article reflects my personal opinion and analysis based on publicly available information as of May 18, 2026. It does not constitute investment advice, a recommendation to buy or sell securities, or a solicitation to invest. Investing in equities — particularly in emerging-market and small/mid-cap stocks like StoneCo (NASDAQ: STNE) — carries substantial risk, including the risk of total capital loss. Brazilian equities are additionally exposed to currency, political, regulatory, and macroeconomic risks. Past performance is not indicative of future results. The Fair PE model is a personal valuation framework and represents my own assessment; it is not a guarantee of future returns. Forward-looking statements are inherently uncertain.
Conflict of Interest Disclosure: StoneCo (NASDAQ: STNE) is a position in the Haas invest4 innovation fund (invest4.net), which I manage. I may also hold positions in StoneCo in my private portfolio and/or in Wikifolios I manage. I therefore have a direct financial interest in the performance of this stock. Please conduct your own due diligence or consult a licensed financial advisor before making any investment decisions.
The metrics seem like a great buy. I guess that there is room for $NU $PAGS and $STNE to all grow together. Any chance that the technology of merchant pay terminals could change? Or even if it did, the payment would still go through a Stone account?
The metrics seem like a great buy. I guess that there is room for $NU $PAGS and $STNE to all grow together. Any chance that the technology of merchant pay terminals could change? Or even if it did, the payment would still go through a Stone account?