We recently published a list of 8 High-Growth, High-Margin Stocks to Invest in Now. In this article we will look at where StoneCo Ltd. (NASDAQ:STNE) ranks relative to other high-growth market stocks to invest in.
How Market Trends Shape Opportunities
When investor confidence is high, capital tends to flow into growth sectors, driving up stock prices and valuations. This is particularly relevant for companies with strong growth prospects and high margins, as they are often seen as more resilient in a recovering economy. Current market dynamics indicate that much of the upward movement can be attributed to multiple expansions rather than earnings growth alone. High-growth stocks generally trade at higher price-to-earnings ratios. So, if the market continues to grow, these stocks could benefit significantly as investors are willing to pay a premium for their growth potential.
Jason Trennert, Chairman and CEO of Strategas Research Partners, joined CNBC’s “Squawk Box” on October 3 to discuss the latest market trends and the state of the economy, emphasizing that the bar is high for turn bearish now.
Jason Trennert revealed he became optimistic about late 2023 after initially predicting a recession. Despite the challenges of 2022 and early 2023, which made it difficult to envisage a market recovery, he noted that the market has defied expectations and continued to grow. Trennert attributed a significant portion of this upward movement to multiple expansions rather than earnings growth alone. It marked a pivotal moment in 2023 with the collapse of Silicon Valley Bank, which led to increased liquidity in the market and a subsequent rally. He recalled that about eleven months ago the S&P 500 index briefly hit 4,100 as ten-year yields reached 5%, suggesting that market dynamics have changed significantly since then.
In discussing current valuations, Trennert pointed out that the market trades at around 22 times earnings during an easing cycle. He expressed skepticism about future earnings growth, as expectations of a 14% increase in S&P earnings next year appear inconsistent with the Fed’s expected six rate cuts. He pointed out that if the market expects such significant easing while projecting strong earnings growth, there could be a lag.
Trennert also addressed concerns about government spending and deficits, noting that the federal deficit has reached 7 percent of GDP and expressing a desire for more free-market policies rather than gridlock in Washington. He criticized both parties for their lack of commitment to reducing deficits and highlighted the moral hazard created by prolonged quantitative easing over the past 12 years. He believes this situation has led to irresponsible spending practices that will eventually require accountability. Despite these concerns, Trennert acknowledged that it is difficult to take a bearish outlook given current market conditions. He noted that ten-year Treasury yields above 4.5% typically lead to market indigestion, while yields below that threshold make it difficult to remain pessimistic.
As for small-cap stocks, Trennert pointed out that they have been historically underrepresented in portfolios and could provide opportunities for future growth. He pointed out that many venture-backed companies are considering going public, and about 45% of them could potentially enter the IPO market at some point. He warned, however, that if the economy continues to slow and earnings growth expectations are not met, small caps could struggle.
Skepticism about the S&P 500’s expected earnings growth could also apply to high-growth stocks. If earnings growth expectations are too optimistic relative to economic conditions, such as anticipated rate cuts, this can lead to volatility in high-growth stocks, especially if actual earnings do not meet these expectations. high expectations. Companies with high profit margins are generally better positioned to weather economic downturns. As Trennert highlighted concerns over government spending and deficits, companies that maintain or improve profit margins may be more attractive to investors seeking stability amid economic uncertainty.
Trennert’s overall analysis highlights the importance of monitoring government policies and economic indicators as they influence investor sentiment and market performance in the future. Nonetheless, its mostly bullish sentiment lays the foundation for many investors, and to make the process of portfolio expansion even easier for them, here we bring you a list of the best investors. 8 High-Growth, High-Margin Stocks to Invest in Now.
Methodology
We sifted through Finviz to draw up an initial list of the main actions. From this list, we narrowed down our choices to 15 companies with a 12-month net profit margin greater than 20% and a 5-year compound annual net profit growth rate greater than 25%. We then selected the 8 most popular stocks among elite hedge funds that analysts were bullish on. Stocks are listed in ascending order of the number of hedge funds that hold stakes in them, as of Q2 2024.
Why are we interested in stocks that hedge funds are piling into? The reason is simple: our research has shown that we can outperform the market by imitating the stocks selected by the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (ssee more details here).
A team of software engineers in a digital workspace collaborating on a fintech software solution.
StoneCo Ltd.STNE)
5-year net income CAGR: 44.06%
TTM net profit margin: 26.86%
Number of hedge fund holders: 35
StoneCo Ltd. (NASDAQ: STNE) is a Brazilian financial technology company that provides payment solutions and financial services to small and medium-sized businesses, offering products such as point-of-sale systems, payment gateways and credit card machines. credit. It differentiates itself with superior customer service, technology distribution and a comprehensive merchant platform.
The company has seen significant growth in the micro and small business (MSMB) market. Financial services revenue increased 10.6% due to 30% growth in MSMB payment customers and higher revenue per customer. The company’s overall customer base grew by 30% and total payment volume (TPV) increased by 25%.
Its banking division saw even more impressive growth, with a 62% increase in customers and a 65% increase in customer deposits, driven by investments in sales and opportunities presented by Brazil’s PIX NFC and marketing initiatives. open banking.
Total revenue in the second quarter decreased 1.06% year-over-year, driven by the growing popularity of PIX QR code payments, which reduced card transactions. Despite this, the company has made progress in credit and banking and remains well-positioned to capitalize on Brazil’s growing fintech market, where it currently has a market share of around 11%. Software vertical revenue increased 3% year-over-year due to higher recurring revenue, although non-recurring revenue declined in priority areas.
StoneCo Ltd. (NASDAQ: STNE) is well positioned for continued growth. Its focus on customer empowerment, combined with its strong competitive advantages, has delivered impressive revenue growth and profitability. The company’s recent financial results demonstrate its strength in the areas of payment, banking and software solutions, making it a promising investment opportunity.
Based on the strong earnings trajectory demonstrated during the first half of the year, StoneCo Ltd. (NASDAQ: STNE) is poised to achieve its long-term goals.
Ave Maria World Equity Fund has stated the following regarding StoneCo Ltd. (NASDAQ: STNE) during its fourth quarter of 2023. investor letter:
“StoneCo Ltd. (NASDAQ: STNE) provides solutions that enable merchants and integrated partners to seamlessly conduct e-commerce across in-store, online and mobile channels in Brazil. StoneCo has faced short-term operational challenges due to the pandemic and high levels of inflation in Brazil. The company appears to have overcome these challenges and it appears that the successful integration of the newly acquired software business with its payments business will generate substantial shareholder value in the long term.
Overall, STNE ranks 7th on our list of high-growth market stocks to invest in. While we recognize the growth potential of STNE as an investment, our belief lies in the belief that AI stocks have great promise in generating high returns and doing so in a shorter time frame. If you’re looking for an AI stock that’s more promising than STNE but is trading at less than 5x earnings, check out our report on cheapest AI stock.
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Disclosure: None. This article was originally published on Initiated Monkey.