As a leading financial technology provider in emerging markets, PagSeguro Digital (PAGS) has shown great potential, particularly in Brazil. The firm has enjoyed a significant annual increase in total payment volume (TPV) and a growing client base. With digital payments gaining momentum worldwide, PagSeguro’s opportunity to secure a stronger market position in South America is apparent. The company’s stock is up 21% over the past year and trades at a discount to industry peers, indicating room for its continued growth.
PAGS is a potentially attractive option for long-term investors interested in exposure to financial technology and emerging markets.
PagSeguro’s Broad Service Offering
PagSeguro Digital is a financial services firm that operates across several markets. It caters to consumers, individual entrepreneurs, minor merchants, and small-to medium-sized businesses. The company’s services include digital banking solutions – from deposit and debt management to wire transfers and POS payments – and debit, credit, cash, and prepaid card offerings.
PagSeguro’s Recent Financial Results & Outlook
The company reported significant strides in critical areas for Q2 2024. Total Payment Volume (TPV) exceeded R$124.4 billion, an impressive 34.2% increase year-over-year. Cash-in increased 52.1% to R$76.4 billion, a record high. Additionally, total deposits skyrocketed by 87.2% to reach R$34.2 billion.
These phenomenal operational results translated to solid financial performance, as total revenue and income grew by 19.1% to R$4,557 million, while gross profit margin expanded by 21.7%. This contributed to an all-time high for both net income and earnings per share (EPS) on both a GAAP and non-GAAP basis, as net income saw a 30.5% boost to R$542 million, and EPS jumped 31.5% to R$1.68.
Based on recent performance, management has increased its guidance for the year, expecting the total payment volume to reach R$480 billion to R$505 billion. The gross profit margin guidance remains above 40%. Net income on a non-GAAP basis is expected to be between R$2.1 billion and R$2.2 billion, with the CapEx remaining unchanged despite higher investments this quarter aligned with business expansion.
What Is the Price Target for PAGS Stock?
The stock has been volatile, with a beta of 1.69, and has been relatively range-bound over the past few years. It trades near the middle of its 52-week price range of $6.93 – $14.98 and shows negative price momentum by trading below its 20-day (12.11) and 50-day (12.37) moving averages. The stock appears to be relatively undervalued, with a P/S ratio of 1.8x, which is a far cry from the software infrastructure industry’s average of 9.2x. However, how much of this discount is related to the company’s location (best house in a rough neighborhood) is tricky to decipher.
Analysts following the company have taken a cautious stance on the stock. For instance, Morgan Stanley (MS) analyst Jorge Kuri recently reiterated a Hold rating on the shares with a price target of $14.00, noting the company’s Q2 results but warning that an increasingly competitive environment could squeeze margins.
Pagseguro Digital is rated a Moderate Buy based on seven analysts’ aggregate recommendations and price targets. The average price target for PAGS stock is $15.07, which suggests a potential upside of 42.17% from current levels.
PagSeguro in Summary
With digital payments becoming increasingly popular, PagSeguro is in an excellent position to secure a robust market share in South America. Recent financial results are promising, with a record high TPV, cash-in, and deposit increases. The stock has seen growth in the past year and continues to trade at a value, hinting at potential future growth. For those looking to gain unique investment exposure to the financial technology sector and emerging markets, PAGS represents a potentially attractive option.
