PagSeguro Stock: Battered Brazilian Fintech Stock Has 200% Potential Upside

PagSeguro Digital Ltd Playing the Brazilian Fintech Space

When it comes to the financial technology (fintech) sector, Profit Confidential is largely fixated on the U.S. Nevertheless, we also keep an eye on the robust growth of the fintech space in many of the world’s other large economies.

Take Brazil, for example. While beaches and parties might come to mind when you think about the country, Brazil is the dominant economy of Latin America, with a population of more than 200 million. This means vast opportunities in many industries, including fintech.

PagSeguro Digital Ltd (NYSE:PAGS) is a Brazilian company to watch. It provides fintech solutions to consumers, entrepreneurs, small-scale merchants, and other small and medium-sized businesses.

PagSeguro generates billions of dollars in annual revenues, is profitable, and churns out positive free cash flow. Despite that, PAGS stock is down by 72% from its 52-week high. Over the last three months alone, PagSeguro stock lost 48% of its value.

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The degree of the share-selling doesn’t make sense. Perhaps investors see PagSeguro Digital Ltd not being based in the U.S. as a major disadvantage. Regardless, I like the contrarian opportunity in PAGS stock and think it’s worth a look.

Compelling Risk/Reward Scenario With PagSeguro Stock

PAGS stock’s price chart below shows a fragile technical situation evolving after its breakdown in October 2021. The stock is looking for support below both its 50-day and 200-day moving averages.

Moreover, PagSeguro stock is caught in a death cross pattern, which is a bearish technical crossover that arises when the 50-day moving average breaks below the 200-day moving average.

That’s the bad news, but given PagSeguro Digital Ltd’s strong fundamentals and PAGS stock’s price deterioration, I’m taking the opposite view of the market. I view PagSeguro stock’s price weakness as an aggressive opportunity.

First of all, PAGS stock is technically oversold. In theory, this implies buying support for PagSeguro Digital Ltd, but it isn’t a sure thing.

Chart courtesy of StockCharts.com

Look for PagSeguro stock to hold, which would allow it to bounce back.

The Fibonacci retracement lines (blue straight lines in the above chart) point to significant upside potential. The first retracement target is $33.74, followed by $39.11, $44.47, and over $60.00. Those levels might seem a long way off, but under the right circumstances, they are plausible.

Analyst Take

A battle for direction is being waged in the stock market.

On the one hand, there’s decent institutional support for PagSeguro Digital Ltd, with 410 institutions holding a 60% stake in PAGS stock. The short sellers, however, are fighting back with 15.2 million shorted shares, or 11.1% of the float. (Source: “PagSeguro Digital Ltd. (PAGS),” Yahoo! Finance, last accessed February 11, 2022.)

I’m going to stick with the long side and say I like the risk/reward scenario with PagSeguro stock.