Should Value Investors Buy StoneCo (STNE) Stock?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One stock to keep an eye on is StoneCo (STNE). STNE is currently sporting a Zacks Rank #2 (Buy), as well as an A grade for Value. The stock holds a P/E ratio of 11.19, while its industry has an average P/E of 27.17. Over the past 52 weeks, STNE's Forward P/E has been as high as 11.19 and as low as 6.09, with a median of 8.65.

We also note that STNE holds a PEG ratio of 0.37. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. STNE's PEG compares to its industry's average PEG of 0.98. Within the past year, STNE's PEG has been as high as 0.45 and as low as 0.28, with a median of 0.35.

Another notable valuation metric for STNE is its P/B ratio of 2.71. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 4.46. Over the past year, STNE's P/B has been as high as 2.71 and as low as 0.88, with a median of 1.45.

Value investors also use the P/S ratio. The P/S ratio is calculated as price divided by sales. This is a preferred metric because revenue can't really be manipulated, so sales are often a truer performance indicator. STNE has a P/S ratio of 1.05. This compares to its industry's average P/S of 2.8.

These figures are just a handful of the metrics value investors tend to look at, but they help show that StoneCo is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, STNE feels like a great value stock at the moment.

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This article originally published on Zacks Investment Research (zacks.com).

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