In This Article:
We came across a bullish thesis on PagSeguro Digital Ltd. (NYSE:PAGS) on the Value Investing Subreddit Page by photon_lines. In this article, we will summarize the bulls’ thesis on PAGS. PagSeguro Digital Ltd. (NYSE:PAGS)'s share was trading at $6.40 as of Dec 20th. PAGS’s trailing and forward P/E were 6.26 and 5.67 respectively according to Yahoo Finance.
A person holding their smartphone, utilizing the company's digital banking services from anywhere.
PagSeguro Digital is currently trading at a significant discount, with its shares priced at a forward P/E of approximately 5.5, which is disconnected from the company’s fundamentals. As a premium payments processor in Brazil, similar to PayPal, PagSeguro has been growing rapidly and consistently profitable since its IPO. Over the past five years, payment volume has increased dramatically, with the number of transactions processed rising from 115 billion to 394 billion, accounting for around 44% of total revenue. This strong growth in transaction volume is coupled with a rise in revenue from ~$1.3 billion to ~$3.4 billion, along with net income growth from ~$210 million to ~$370 million. PagSeguro's performance has consistently exceeded expectations, making its current valuation appear mispriced.
The company also operates PagBank, Brazil’s second-largest digital bank, which serves over 30 million users. PagBank offers a wide array of financial services, including a complete investment platform, access to stocks, REITs, Treasury bonds, and over 170 investment funds. It also provides services like education and financial advisory, and has partnered with other institutions to offer insurance, health assistance, and more. This positions PagSeguro as a significant player in both the payment processing and online banking sectors in Brazil, which continue to expand.
Despite its solid fundamentals, PagSeguro's shares have been under pressure, largely due to broader economic challenges in Brazil, including uncertainty surrounding the market and the devaluation of the Brazilian real. However, historical precedent suggests that the Brazilian government, under President Lula, has taken corrective action in such situations, which provides some hope for a rebound in both the currency and equity markets. The sell-off in PagSeguro shares seems overdone, particularly when considering the company’s competitive advantages, such as its integration of PIX into its platform, a wide moat in the payments space, and strong growth in online banking with a well-regarded app.