StoneCo's Credit Portfolio Surge Revives Past Fears, But Structural Changes Offer Cautious Optimism

What happened

StoneCo's stock has risen 84% year-to-date but remains over 80% below its highs and has recently stalled, partly due to the Linx divestiture and investor concerns over credit growth. In Q3, the credit portfolio surged 27% sequentially while non-performing loans increased to 5.03%, triggering flashbacks to the 2021 credit collapse that wiped out significant market value. However, the company claims its Credit 2.0 product is structurally different, with direct integration into the Registry of Receivables and a fortress-like 265% coverage ratio aimed at mitigating past flaws. Beyond credit, StoneCo continues to demonstrate improved operational momentum in 1H25, leveraging nationwide scale and cross-sell opportunities, as noted in filings, though it faces persistent headwinds like take-rate pressure from Pix and macro sensitivity. The critical question is whether these enhanced safeguards can support sustainable growth without repeating historical missteps, amidst ongoing execution risks and competitive pressures.

Implication

The sharp increase in StoneCo's credit portfolio introduces near-term risk, evoking past failures and necessitating vigilant tracking of NPL trends and coverage ratios for signs of stress. Structural enhancements in Credit 2.0, such as the 265% coverage ratio, may offer some protection, but their effectiveness depends on execution and economic conditions, requiring skepticism until proven over time. Overall, the company's improving profitability, nationwide reach, and active capital allocation support a constructive bias, but macro sensitivities, take-rate compression, and regulatory risks remain significant offsets. A failure to manage credit expansion could erode recent gains, while successful integration could bolster financial services revenue and enhance long-term value. Therefore, investors should balance optimism with caution, focusing on quarterly updates for credit quality, cross-sell progress into Linx, and free cash flow generation to validate the turnaround.

Thesis delta

The thesis remains 'watch with constructive bias,' but the credit portfolio growth adds a layer of risk that tightens monitoring requirements without fundamentally shifting the outlook. Structural claims in Credit 2.0 may mitigate concerns, but given StoneCo's history and ongoing vulnerabilities, investors should demand tangible evidence of sustained credit quality before increasing conviction. This nuance reinforces the existing offsets of macro and pricing pressures, emphasizing that execution on credit safeguards is now a critical variable alongside cross-sell and FCF improvement.