StoneCo (STNE) shares have sold off sharply the last few weeks with Brazilian stocks and are now -55% YTD but seeing some options positioning recently and valuation is looking quite compelling. STNE has seen recent buys of 5000 January 2025 $8 calls to open, 3500 April $8 calls to open, 2500 Jan. 2027 $5 ITM calls to open, 1000 January 2026 $8 calls to open and has 10,000 January 2025 $10 short puts in open interest. STNE shares are trading back to a level that was very supportive through 2022. STNE short interest is at 5.8% of the float.

StoneCo Ltd. is a leading Brazilian fintech company that provides financial technology and software solutions primarily to micro, small, and medium-sized businesses (MSMBs) in Brazil. Financial Services is 80% of revenues with payment processing, digital banking and credit offering. Software is the other 20% with Point-of-Sale systems, ERP solutions, CRM tools and more. Transaction Fees in payment processing contribute 65% of revenues.

STNE has a market cap of $2.5B and trading 6.6X Earnings, 2.6X EBITDA and 1.5X EV/Sales. STNE also trades just 3.1X Cash. STNE options positioning is intriguing with reports in late November that StoneCo has received multiple nonbinding offers for its software unit Linx, and a potential sale would allow STNE to focus on its Financial Services offerings. 20 potential bidders have signed non-disclosure agreements to have access to information regarding the sale. Totvs SA and Canada’s Constellation Software are two potential bidders. StoneCo would probably not consider selling Linx for much less than 5 billion reais. Reuters reported in September that Stone had hired investment banks J.P. Morgan and Morgan Stanley to sell Linx. StoneCo authorized a share repurchase program of up to 2 billion reais recently and a sale of the software unit would further enhance its excess capital and strong balance sheet.

MSCO was out cautious STNE in November expecting a significant slowdown in TPV growth at Stone, on the back of market saturation in digital payments. Stone’s market share gains will likely slow down, given its already large share in MSMB and as saturation leads to increased competition. MSCO also anticipates competition will drive significant pricing pressure, particularly in pre-payment, which drives 100% of Stone’s profits. It sees diminishing operating leverage due to rising sales and marketing expenses in a more competitive market. It expects net income at STNE to decrease over the next six years — in contrast to the current sell-side consensus expecting double-digit growth.