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Should Value Investors Buy StoneCo (STNE) Stock?

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Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company to watch right now is StoneCo (STNE - Free Report) . STNE is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 13.59 right now. For comparison, its industry sports an average P/E of 35.04. Over the past year, STNE's Forward P/E has been as high as 22.53 and as low as 9.96, with a median of 14.91.

Another valuation metric that we should highlight is STNE's P/B ratio of 1.78. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 3.14. Over the past year, STNE's P/B has been as high as 2.01 and as low as 1.04, with a median of 1.54.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. STNE has a P/S ratio of 2.12. This compares to its industry's average P/S of 3.21.

Finally, we should also recognize that STNE has a P/CF ratio of 10.63. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. STNE's current P/CF looks attractive when compared to its industry's average P/CF of 11.03. Over the past 52 weeks, STNE's P/CF has been as high as 56.55 and as low as 8.12, with a median of 12.60.

These are only a few of the key metrics included in StoneCo's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, STNE looks like an impressive value stock at the moment.


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