Sudden changes in Brazilian rules sent fintech firms StoneCo (NASDAQ:STNE) and PagSeguro (NYSE:PAGS) to new lows before shares recovered. Both are down for different reasons.
StoneCo started its slump in August, after posting unexpectedly higher delinquencies. Brazil changed the way it registers receivables. STNE had to report the change, undermining long-term bullish investors.
The company also faced one-time factors. This includes a lockdown amid the COVID-19 pandemic. In addition, some merchants took advantage of flaws in the system. Furthermore, the company faced an ineffectiveness of the card collateral system.
StoneCo halted disbursing credit starting in June. It lowered its estimate on the potential recovery rate from non-performing clients.
PagSeguro investors panicked when the Brazilian central bank explored a capping in fees. The country’s central bank is asking for public comment on limiting fees on prepaid card transactions at 0.5%. This would cut PagSeguro’s annual revenue by around 4%.
PAGS stock fell to as low as $31.10 in the month before bouncing back. Speculators could bet that the company will not lose as much revenue as expected. The short float is around 9%, compared to 3.9% on STNE stock.
Investors seeking exposure to the fintech space in Brazil may consider both stocks as a rebound play.
