This growth stock, which was once highly promising and received an endorsement from Warren Buffett, has encountered a substantial decline of 82%.

“This presents an excellent opportunity to purchase the stock now and hold onto it for the long term, as Warren Buffett would advocate, emphasizing the enduring value of patient, well-informed investment strategies.”

Warren Buffett, the CEO of Berkshire Hathaway, has not only provided investors with remarkable returns but has also motivated countless individuals worldwide to pursue wealth creation. Although Buffett is renowned for his value investing approach, it is worth noting that Berkshire also holds positions in certain growth stocks that possess tremendous potential.

For investors with a long-term perspective, emulating Buffett’s strategy of investing in high-quality growth stocks can yield significant rewards. In light of this, let’s delve into why Stone Co. stock presents itself as an exceptional investment for those seeking a buy-and-hold opportunity.

A closer look at Stone Co’s undertakings and the underlying causes for its significant decline.

Stone Co, a fintech company based in Brazil, specializes in providing payment-processing and other services to small-and-medium-sized businesses (SMBs). In order for an SMB to accept payments through cards or apps, it requires reliable hardware and a processing network.

Brazil, with its population of over 217 million people, holds the title of Latin America’s most populous country and largest economy. Although the adoption of card-and-app-based payments is still in its early stages compared to other parts of the world, it is experiencing rapid growth. As cash usage declines and payments technologies and e-commerce gain popularity, the potential for expansion in this sector is significant.

The positive long-term growth prospects for payment-processing services in the Brazilian market were likely a major factor in Berkshire Hathaway’s decision to invest in Stone Co stock in 2018. Additionally, Warren Buffett’s company may have recognized the immense potential in Stone Co’s fintech credit business, which offers loans to SMBs.

However, despite the impressive growth of the payment-processing business, Stone Co’s credit business has had a negative impact on the company’s performance in recent years. The company relied on Brazil’s national registry to assess the creditworthiness of applicants, but this system proved to have significant flaws.

Consequently, Stone Co accumulated a substantial number of bad loans in its credit portfolio. To mitigate the losses, the company sold troubled loans at significantly reduced prices and wrote off many loans entirely. It also temporarily halted the extension of new credit to SMBs.

Although this situation may seem bleak, it is important to note that Stone Co’s payment-processing business continued to experience encouraging growth throughout. The company has successfully addressed the previous issues and losses associated with its credit business.

With the past challenges resolved, this growth stock backed by Warren Buffett appears to be well-positioned to deliver exceptional returns in the future.

Stone Co’s resurgence presents an extraordinary chance.

In the first three quarters of 2023, Stone Co experienced a significant increase in sales, with a growth rate of 28%, reaching approximately 8.8 billion Brazilian reals, equivalent to around $1.8 billion. Additionally, their non-GAAP earnings, which are not in accordance with generally accepted accounting principles, surged by an impressive 381%, amounting to 993.7 million reals or approximately $204 million.

While part of this remarkable earnings growth can be attributed to the comparison with the company’s lower profits in 2022, StoneCo’s momentum is undeniable and shows signs of continuing. Looking ahead, from 2024 to 2027, the company anticipates a compound annual growth rate of 31% for their adjusted earnings. This projection further reinforces their positive trajectory and potential for sustained success.

Stone Co’s current valuation of 14 times the projected profit for 2024 appears to be remarkably undervalued considering the impressive growth in earnings. The company’s market capitalization stands at approximately $5.4 billion, accompanied by a net cash position of around $890 million. These enticing figures make Stone Co an extremely appealing investment opportunity for long-term investors.

Should the company achieve its earnings projections, those who purchase the stock at its current price can expect to reap extraordinary returns.