‘Investors are upset’: Brazilian fintech PagSeguro plunges amid election surprise
Analysts forecast annual earnings growth of more than 10% over the next five years for PagSeguro, which operates under the PagBank brand / Photo: Facebook / pagbank
Shares of Brazilian fintech PagSeguro Digital plunged more than 25% on the New York Stock Exchange on Monday after incumbent President Luiz Inácio Lula da Silva won Brazil’s presidential runoff. “Investors are upset, and they're taking it out on every Brazil-related stock they can find,” Motley Fool contributing analyst Rich Smith writes. But that does not make PagSeguro a "sell," he argues: the stock looks cheap regardless of who is president.
Details
PagSeguro Digital shares fell 25.2% on Monday to $8.56 apiece. The stock hit a 52-week low of $7.50 per share during the session. Investors are dumping shares of companies with any connection to Brazil after leftist incumbent Lula unexpectedly won the presidential runoff, Motley Fool contributing analyst Rich Smith writes.
The election result alone, however, is no reason to sell PagSeguro, Smith argues: the stock looks cheap relative to expected earnings growth. PagSeguro currently trades at a price/last-12-months earnings ratio of just 7.7, he points out. Analysts also forecast annual earnings growth of more than 10% over the next five years, he adds. Together, those factors suggest that PagSeguro is undervalued and has upside regardless of who is president of Brazil, Smith believes.
Most Wall Street analysts are more cautious, with eight “hold” ratings on the fintech versus six “buy” calls and two “sell” recommendations. According to Yahoo Finance data, the average target price is $10.80 per share, implying more than 26% upside from Monday’s close.
Context
On Sunday, Lula narrowly defeated far-right candidate Flávio Bolsonaro, who won the first round in early October. Voters are unhappy with high taxes and the incumbent’s handling of the economy. Investors who had piled into Brazilian assets hoped a change in president would bring spending cuts and deregulation.
The runoff dashed those hopes, prompting investors to dump assets exposed to Brazil. The country’s currency, stocks, and bonds fell sharply. “Everyone is very surprised today,” Chris Turner, global head of markets research at ING, told the Wall Street Journal. “There was a strong consensus that it was going the way of Bolsonaro, which was seen as positive for local assets.”
