Why PagSeguro Stock Plummeted Today

Key Points

• Brazilian online banker PagSeguro is the parent company of PagBank.

• PagBank just reported 18% revenue growth for Q2, but PagSeguro stock is down today.

• Currency conversion quirks may be scaring off investors from this low-price Brazilian banking stock.

• 10 stocks we like better than PagSeguro Digital ›

Brazilian fintech and digital bank PagSeguro (NYSE: PAGS), dropped 6.7% through 1 p.m. ET Thursday after the company reported second-quarter earnings.

The company put out only a brief press release (less than 400 words long), describing results at its PagBank subsidiary, and gave most numbers in local currency, the Brazilian real. Between this international quirk and some name confusion, U.S. investors may be wondering whether PagSeguro's news was good or bad.

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PagSeguro Q2 earnings

According to the press release, PagBank grew its revenue 18% year over year, to 5.1 billion reals ($940 million), not counting foreign exchange rates, which is a great way to start off. Profits increased only 7% year over year, however, rising to 537 million reals ($98.7 million).

Deposits grew by 9% in local currency, and the company's loan portfolio grew by 11%. In a tough economy, PagBank purposely grew conservatively, expanding "low-risk, high-engagement products" in particular by 34%.

Commenting on the quarter, CEO Artur Schunck admitted the company is operating "in a challenging economic environment," but insisted the company has "grown profitably" in Q2, and is "on the right path" to continue doing so.

Is PagSeguro stock a sell?

Turning to S&P Global Market Intelligence for reliable data on this difficult to value bank, we see that PagSeguro has a $2.8 billion market capitalization, and earned $405 million in profit over the last 12 months. That makes for a P/E ratio of only about 6.9, which seems cheap to me in light of the deposits and loan growth -- maybe really cheap if the loans are conservatively made.

Throw in a modest 1.5% dividend for good measure, and PagSeguro looks like a buy to me -- not a sell.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends PagSeguro Digital. The Motley Fool has a disclosure policy.