We recently compiled a list of the 12 High Growth Low PE Stocks to Buy.In this article, we are going to take a look at where StoneCo Ltd. (NASDAQ:STNE) stands against the other high growth low PE stocks.
Amid the artificial intelligence frenzy, stock valuations have been overlooked. Over the past two years, investors have shunned value-oriented names in favor of high-flying technology names. That has left investment portfolios susceptible to heightened volatility should there be a deep correction as investors react to premium valuations.
While the dust appears to have settled in the aftermath of the massive pullback following the revelation that DeepSeek might be way ahead of most American AI models, Niles, founder and portfolio manager at Niles Investment Management, believes investors should be highly cautious. “I think investors should be cautious about assuming that this is the bottom,” Niles told CNBC’s Sri Jegarath and Chery Kang on Squawkbox Asia.
It’s no secret that most stocks are trading at premium valuations in response to the AI-driven rally. Consequently, the focus is increasingly on high-growth stocks trading at discounted valuations characterized by low price-to-earnings multiple. Likewise, some of the best stocks in this category are backed by solid underlying fundamentals such as robust revenue growth.
High-growth stocks are mostly companies well-positioned to grow their profits more quickly than the typical companies in their industry. However, growth investing is more than just choosing stocks. The focus should always be on companies that have frequently created novel products or services that are expanding their market share, breaking into new markets, or even starting whole new industries.
Similarly, companies that can grow faster than average for extended periods of time and provide shareholders with sizable returns are typically rewarded by the market. Additionally, the potential returns increase with their rate of growth.
Growth stocks are impacted by high inflation because it lowers the projected future value of their earnings. Supply chain limitations, also impact some company's capacity to grow and other macroeconomic factors slow down the economy as a whole. However, when growth stock prices are low, downturns can present a buying opportunity for long-term investors.
While the focus for the longest time has been on tech giants benefiting from the AI trade, Tom Lee, head of research at Fundstrat Global Advisors, believes investors should consider diversifying their portfolios. Given that valuations in the tech industry appear overblown, financials offer a way out at highly discounted valuations backed by solid underlying fundamentals.
“I think financials to me represent a pretty good fundamental case of change this year because we have a new administration, a Fed that is dovish, yields that aren’t painful for banks — and a time when it could lead to upside for capital markets activity, and multiples are low,” Lee said
Even as investors debate whether the DeepSeek correction amounted to an overreaction focusing on high growth, low PE stocks appear to be a promising play given the heightened volatility in the market.
Our Methodology
To make the list of 12 high growth low PE stocks to buy, we scanned US stock markets using finviz, focusing on high growth stocks with robust revenue growth metrics (more than 25%). We then settled on the 12 stocks that appear undervalued owing to a low price-to-earnings multiple of less than 15 (as of January 29). Finally, we ranked the stocks in ascending order based on hedge funds stakes in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of software engineers in a digital workspace collaborating on a financial technology software solution.
StoneCo Ltd. (NASDAQ:STNE) provides financial technology and software solutions to merchants and integrated partners to conduct electronic commerce across in-store, online, and mobile channels in Brazil. While the company was under immense pressure in 2024, it has started showing signs of improvement.
With a solid staff and well-defined operational procedures, its credit business is in a strong position. The company's operational strength is demonstrated by its 13.9% annual revenue growth and profitability, with earnings per share of $1.18. StoneCo Ltd.’s (NASDAQ:STNE) daily amortization model is one of the characteristics that might set it apart in the market and result in lower default rates.
The 2020 Linx purchase by StoneCo is being scrutinized as the business evaluates bids for the division. Constellation Software of Canada and the Brazilian software company Totvs SA are among the interested parties, though Totvs has stated that it has not yet made an offer. According to reports, the tech company is financially stable, which lessens the need to sell Linx. StoneCo Ltd.’s (NASDAQ:STNE) recent approval of a share repurchase program worth up to 2 billion reads affirms financial stability.
Overall STNE ranks 11th on our list of the high growth low PE stocks to buy. As we acknowledge the growth potential of STNE as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than STNE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
