Is PagSeguro Digital Now Attractive After 2024 Rebound And Brazil Fintech Competition Jitters?

• Wondering if PagSeguro Digital at $9.53 is a bargain or a value trap? This article walks through the numbers in plain English so you can decide with confidence.
• The stock is down 7.1% over the last week and 3.8% over the last month, but it is still up 48.7% year to date and 55.4% over the past year. This follows a sharp rebound after a painful 81.5% slide over five years.
• Recent headlines around Brazil's digital payments landscape and increased competition in fintech have kept sentiment mixed, even as investors reassess the long term growth runway for cashless transactions. At the same time, regulatory developments and ongoing market share battles in the country's e commerce and point of sale ecosystems have added volatility to PagSeguro Digital's share price.
• Despite the noise, PagSeguro Digital currently scores a 6/6 on our valuation checks, suggesting it screens as undervalued across all our metrics. Next we will unpack what that means under different valuation approaches before finishing with a more holistic way to think about what the stock is really worth.

PagSeguro Digital delivered 55.4% returns over the last year. See how this stacks up to the rest of the Diversified Financial industry.

Approach 1: PagSeguro Digital Excess Returns Analysis

The Excess Returns model asks a simple question: does PagSeguro earn more on shareholders’ capital than it costs to provide that capital, and for how long can that continue? It focuses on how efficiently the company reinvests profits rather than just how fast it grows.

For PagSeguro Digital, analysts see a stable earnings power of roughly $9.07 per share, supported by an average return on equity of 16.10% on a book value base of about $51.16 per share. With a cost of equity of $6.03 per share, the market requires that level of return just to break even, so the remaining $3.04 per share is considered true economic profit, or excess return. As book value is projected to grow toward $56.31 per share, those excess returns compound over time.

When Simply Wall St capitalizes these future excess profits, it arrives at an intrinsic value of about $17.59 per share, implying the stock is roughly 45.8% undervalued relative to the current price around $9.53.

Result: UNDERVALUED

Our Excess Returns analysis suggests PagSeguro Digital is undervalued by 45.8%. Track this in your watchlist or portfolio, or discover 916 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for PagSeguro Digital.

Approach 2: PagSeguro Digital Price vs Earnings

For profitable companies like PagSeguro Digital, the price to earnings ratio is a useful shorthand for how much investors are willing to pay today for each dollar of current earnings. It naturally links value to profitability, which is what ultimately supports shareholder returns over time.

What counts as a normal or fair PE depends largely on two things: how fast earnings are expected to grow and how risky or cyclical those earnings are. Faster, more predictable growth typically justifies a higher multiple, while slower or more volatile earnings warrant a lower one. PagSeguro currently trades on a PE of about 6.9x, which is well below both the Diversified Financial industry average of roughly 13.7x and the broader peer group at around 45.3x.

Simply Wall St’s Fair Ratio framework estimates that, given PagSeguro’s growth outlook, profitability, size and risk profile, a more appropriate PE would be about 16.2x. This Fair Ratio is more informative than a simple comparison to peers or the industry because it adjusts for company specific drivers rather than assuming all businesses deserve the same multiple. With the stock on 6.9x versus a Fair Ratio of 16.2x, the multiple suggests PagSeguro is trading at a significant discount to what its fundamentals would justify.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1458 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your PagSeguro Digital Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of PagSeguro Digital’s future to a clear financial forecast and fair value estimate. A Narrative is your story behind the numbers, where you spell out what you expect for revenue, earnings and margins, and then see how that translates into a fair value that you can compare to today’s share price. On Simply Wall St’s Community page, where millions of investors share their views, Narratives are easy to create and update, and they automatically refresh when new information like earnings results or major news hits the market. This makes it straightforward to decide whether PagSeguro looks like a buy, hold or sell, because you are always comparing a living, dynamic Fair Value to the current price. For example, one PagSeguro Narrative might assume improving margins, modest revenue growth and a fair value near the bullish target of about $13.98, while another more cautious Narrative might bake in slower growth, tighter margins and a fair value closer to the bearish $5.17. This gives you a clear sense of where your own expectations sit on that spectrum.

Do you think there's more to the story for PagSeguro Digital? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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