Many investors are focusing on how numerous U.S. Federal Reserve interest-rate decreases later this year may benefit growth stocks. I think one potential foreign enterprise needs greater attention.
If you have $1,000 to invest in stocks now, try Brazilian fintech stock StoneCo (NASDAQ: STNE). Although StoneCo shares have grown 74% in the previous year, I think it might become the ultimate growth company in 2024.
StoneCo is already benefiting from cheaper Brazilian rates. After hiking the U.S. federal funds rate at an unprecedented pace starting in March 2022 to limit inflation, the Fed predicted at least three rate decreases in 2024. Stocks benefit because it makes them more appealing to fixed-income alternatives. But it's especially excellent for pre-profitable growth stocks that are vulnerable to increased rates.
The Brazilian Central Bank (BCB) lowered rates by 50 basis points (0.5 percentage points) in August and September 2023, its first rate decreases in three years. Unless inflation unexpectedly rises, this trend of rate decreases is projected to continue through at least the first half of 2024 and maybe for two years.
Why does StoneCo benefit? StoneCo's profit margins were squeezed in 2021 as Brazil's target federal funds rate rose from 2% in March 2021 to 13.8% in August 2022. Even after our prior rate rises, the US federal funds rate is 5.25% to 5.5%.
StoneCo persistently refused to pass on additional expenses to its loyal, growing network of micro, small, and medium-sized company (MSMB) clients in order to empower them to scale their enterprises effortlessly in person or online.
That intransigence and huge credit product losses in late 2021 (after technical issues hampered the BCB's then-new financial registry debut) drove StoneCo's share price down 80% in 2021. StoneCo also maintained good relationships with its primary MSMB clients, who responded effectively when it eventually began repricing in late 2021 to reduce losses.
StoneCo is back on track today. After two years of losses, the firm launched a 1-billion Brazilian real (approximately $204 million) repurchase program and is on course to make its first full-year profit. StoneCo also provided medium-to-longer-term CAGRs from 2024 to 2027 of 26% for client deposits, 13% for MSMB total payment volumes, 90% for its recently relaunched credit-portfolio product, and 31% for adjusted net income in November.
The U.S. International Development Finance Corporation (USIDFC) provided StoneCo with a $467.5 million revolving credit facility last month. StoneCo will enable liquidity for installment sales, which account for 80% of Brazilian e-commerce transactions, using the profits from the new facility to assist its MSMB clients expand.
Thus, StoneCo is poised to accelerate in the future quarters. I think investors who open or add before that acceleration will be pleased. Motley Fool Stock Advisor analysts have named the 10 greatest stocks to purchase today, but StoneCo wasn't one of them. The 10 stocks selected might provide huge gains in the future.