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    The Market Lifts StoneCo Ltd. (NASDAQ:STNE) Shares 25% But It Can Do More

    Simply Wall St·04/27/2025 12:22:59
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    StoneCo Ltd. (NASDAQ:STNE) shares have continued their recent momentum with a 25% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

    In spite of the firm bounce in price, StoneCo's price-to-sales (or "P/S") ratio of 1.7x might still make it look like a buy right now compared to the Diversified Financial industry in the United States, where around half of the companies have P/S ratios above 2.5x and even P/S above 5x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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    See our latest analysis for StoneCo

    ps-multiple-vs-industry
    NasdaqGS:STNE Price to Sales Ratio vs Industry April 27th 2025

    How StoneCo Has Been Performing

    Recent times have been advantageous for StoneCo as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

    Keen to find out how analysts think StoneCo's future stacks up against the industry? In that case, our free report is a great place to start.

    Do Revenue Forecasts Match The Low P/S Ratio?

    StoneCo's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

    Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. This was backed up an excellent period prior to see revenue up by 178% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

    Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 5.8% per annum growth forecast for the broader industry.

    In light of this, it's peculiar that StoneCo's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

    The Bottom Line On StoneCo's P/S

    The latest share price surge wasn't enough to lift StoneCo's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

    To us, it seems StoneCo currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

    And what about other risks? Every company has them, and we've spotted 1 warning sign for StoneCo you should know about.

    If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.