What happened
Shares of PagSeguro Digital (NYSE: PAGS) sank in Friday morning trading. The Brazilian fintech company's stock was down by 14.7% as of 12:27 p.m. ET, according to data from S&P Global Market Intelligence.
PagSeguro published its Q1 earnings results after the market closed Thursday and recorded mixed performance compared to Wall Street's estimates. The business posted earnings of 1.24 Brazilian reals per share ($0.25 per share) on sales of 3.75 billion reals ($750 million), while the average analyst target had called for a profit of 1.10 reals per share ($0.22 per share) on revenue of 3.84 billion reals ($770 million). But beyond the sales miss, other key factors are driving Friday's big sell-off.
So what
PagSeguro has been moving toward having more of its credit portfolio built on secured loans as opposed to unsecured loans. Last quarter, the company indicated that it was on track to bring its share of secured loans to 60% this year. However, a response to an analyst's question during the company's earnings call suggests that it may fall a bit short of the target.
In addition to business-specific performance and guidance, macroeconomic news is likely also pressuring PagSeguro stock. On Friday, Brazil's central bank announced that the country had a current account deficit of $1.7 billion in April, down from the surplus of $286 million it had recorded in March, and significantly larger than the $250 million deficit that economists had expected. Current account balance is a metric that tracks whether a nation has brought more money in from other countries or sent more money out through trade and other channels. April's deficit suggests Brazil's economy may be weakening.
Now what
While the Brazilian economy could continue to be volatile in the near term, the long-term demand outlook for payment processing and financial services in the country is promising.
PAGS PE Ratio (Forward) data by YCharts.
With PagSeguro stock now trading at less than 10 times this year's expected earnings, shares are looking cheap. The company has strong positions in its core service categories, and it could be a worthwhile buy for risk-tolerant investors on the heels of Friday's big stock pullback.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PagSeguro Digital. The Motley Fool has a disclosure policy.
