Why Did a Major Fund Dump StoneCo (STNE) Despite Its Recent Rally

Key Takeaways

• Atmos Capital Gestao De Recursos Ltda. completely exited its $169 million position in Brazilian fintech StoneCo (STNE), a significant move given its prior portfolio weight.
• The divestment comes despite StoneCo's recent strong share price rebound and a consensus "Strong Buy" analyst rating, suggesting a deeper strategic or risk-related rationale.
• Investors should scrutinize StoneCo's operational challenges, including intense competition, regulatory shifts, and credit exposure, which may have influenced Atmos Capital's decision.

Why Did a Major Fund Dump StoneCo (STNE) Despite Its Recent Rally?

The investment world is buzzing after Atmos Capital Gestao De Recursos Ltda., a prominent Brazilian hedge fund, completely divested its substantial $169 million holding in StoneCo (STNE). This isn't just a minor portfolio adjustment; it represents a full exit from a position that previously held significant weight within Atmos Capital's $761 million assets under management. The move is particularly striking given StoneCo's recent share price performance, which has seen the stock rebound significantly, trading at $17.08 as of February 24, 2026, and boasting an impressive 88.0% return over the past year.

Such a decisive exit by a sophisticated institutional investor like Atmos Capital, known for its deep fundamental analysis and long-biased approach to Brazilian equities, raises critical questions. Was this a tactical profit-taking maneuver, or does it signal a more fundamental concern about StoneCo's long-term prospects? The market's current narrative on StoneCo often highlights its role in Brazil's digital payments sector and its potential in banking and credit, yet Atmos Capital chose to walk away entirely. This divergence between a major fund's action and the prevailing bullish sentiment demands a closer look.

The decision to completely offload a position of this magnitude, especially one that had seen such a strong recovery, suggests that Atmos Capital may have identified risks or strategic misalignments that outweigh the perceived upside. While analysts generally maintain a "Strong Buy" consensus with an average price target of $17.50, institutional investors often operate with a different lens, focusing on factors like competitive landscape shifts, regulatory headwinds, or internal operational challenges that might not be immediately apparent in headline figures. This deep dive will explore the potential reasons behind Atmos Capital's surprising divestment and what it could mean for other investors holding or considering StoneCo.

What Was StoneCo's Performance Leading Up to the Divestment?

StoneCo has experienced a rollercoaster ride over the past few years, but its recent trajectory has been largely positive, making Atmos Capital's full divestment all the more noteworthy. As of late February 2026, STNE shares were trading at $17.08, reflecting a 2.55% gain on the day and a significant rebound from its 52-week low of $8.64. Over the past year, the stock has delivered a remarkable 88.0% return, and even over three years, it's up 84.3%.

However, this impressive short-to-medium term performance masks a more challenging longer-term picture. StoneCo's five-year return still stands at a substantial 80.8% decline, indicating that the recent rally is a recovery from a much deeper trough. This context is crucial: while the stock has been on an upward trend, it's still far from its historical highs, suggesting that some investors might view the current price as merely a partial recovery rather than a full realization of its potential. The market capitalization currently sits at $4.57 billion, reflecting its position as a significant player in the Brazilian fintech landscape.

Analyst sentiment has been predominantly optimistic, with a "Strong Buy" consensus among eight analysts covering the stock. Firms like BTIG initiated coverage with a "Buy" rating and a $22 price target in early February, while Goldman Sachs and UBS maintained "Strong Buy" ratings with targets of $19 and $20 respectively. This widespread bullishness, coupled with the stock's strong recent performance, creates a puzzling backdrop for Atmos Capital's complete exit. It suggests that the fund's decision was not merely about taking profits on a rising stock, but potentially about a re-evaluation of the underlying business fundamentals or future growth prospects that diverge from the consensus view.

What Are the Bull and Bear Cases for StoneCo?

The investment narrative around StoneCo is a classic tale of high growth potential versus significant operational risks, a dichotomy that likely played into Atmos Capital's decision. On the bull side, StoneCo is lauded as a pivotal player in Brazil's rapidly digitizing economy, particularly in the underserved micro, small, and medium-sized business (MSMB) segment. Its comprehensive fintech platform, encompassing payments, banking, and credit solutions, positions it to capture a large and growing market.

Proponents point to StoneCo's robust revenue traction, with reported annual revenue of R$14.23 billion (approximately $2.85 billion based on a 5:1 BRL/USD exchange rate) and projected annual revenue of $14.88 billion (likely BRL, or $2.98 billion USD) for the upcoming year, representing a 4.53% increase. The company's valuation, with a Price-to-Sales (P/S) ratio of 1.72x, sits below the diversified financial industry average of 2.47x and peer average of 2.02x, suggesting it might be undervalued relative to its growth prospects. Simply Wall St's Excess Returns model, for instance, estimates an intrinsic value of $39.85 per share, implying the stock is 54.9% undervalued. Furthermore, supportive regulation for open banking and ongoing platform development are seen as catalysts for diversifying revenue and sustaining earnings, even with planned leadership transitions into 2026.

However, the bear case highlights substantial headwinds. Intense competition from both local fintechs and global players, coupled with the rise of Central Bank Digital Currencies (CBDCs) and the popular PIX instant payment system, could pressure StoneCo's core payment economics and reduce transaction volumes. Regulatory and compliance demands are also increasing, adding to operational costs. A significant concern is StoneCo's credit exposure to Brazilian MSMBs, a segment prone to higher default risks, which has historically led to net income losses, such as the reported R$1.16 billion (approximately $232 million) loss. This combination of competitive pressure, regulatory burden, and credit risk creates earnings uncertainty, potentially justifying a more cautious valuation. The implied premium to a bearish fair value of $13.00 per share, at the recent $17.99 price, suggests a 38% overvaluation under this narrative, indicating that even with recent gains, the stock might still be priced optimistically given the inherent risks.

What Operational and Strategic Factors Could Have Triggered the Exit?

Atmos Capital's complete divestment from StoneCo, despite the stock's recent rally and positive analyst sentiment, strongly suggests that the fund's decision was driven by a deep assessment of operational and strategic factors. While the market often focuses on top-line growth, sophisticated investors like Atmos Capital scrutinize the underlying health and future trajectory of the business, especially in a dynamic market like Brazilian fintech.

One critical factor could be the intensifying competitive landscape. Brazil's fintech sector is a battleground, not just with traditional banks but also with agile local startups and global tech giants. The widespread adoption of PIX, Brazil's instant payment system, while beneficial for the economy, poses a direct threat to the transaction volumes and fees that form the bedrock of StoneCo's revenue. If Atmos Capital believes that PIX and other emerging payment technologies will significantly erode StoneCo's competitive moat and pricing power, a full exit would be a logical, albeit aggressive, move.

Another significant concern could revolve around StoneCo's credit business. While expanding into credit offers substantial growth opportunities, it also introduces considerable risk, particularly when lending to MSMBs in an emerging market. Historical net income losses, such as the R$1.16 billion reported, underscore the volatility and potential for significant write-offs in this segment. If Atmos Capital's internal models projected a worsening credit quality outlook or higher-than-anticipated capital requirements to support this growth, it could have triggered a re-evaluation of the investment's risk-adjusted return profile. Furthermore, the firm's focus on "deep fundamental analysis, governance assessment, and engagement with management" suggests that any perceived missteps in execution or leadership transitions could also be a red flag. A fund with a long-biased strategy would be particularly sensitive to these long-term structural and operational challenges, even if short-term price action is favorable.

What Does This Divestment Mean for Institutional Sentiment and Future Outlook?

Atmos Capital's complete exit from StoneCo is a significant signal, potentially indicating a shift in institutional sentiment towards the Brazilian fintech sector or StoneCo specifically. While one fund's action doesn't dictate the entire market, a full divestment by a major, Brazil-focused institution like Atmos Capital, which manages $761 million in assets, cannot be ignored. It suggests that despite the prevailing "Strong Buy" consensus among analysts and StoneCo's recent share price rebound, there are underlying concerns that are compelling enough for a complete retreat.

This move could prompt other institutional investors to re-examine their own StoneCo holdings, particularly those with similar investment philosophies focused on deep fundamental analysis and long-term conviction. The 13F filing, which disclosed Atmos Capital's Q4 2025 activity, revealed a broader trend of reducing exposure to several tech giants like Alphabet, Amazon, Microsoft, and Meta, while increasing positions in other Brazilian-focused companies like Nu Holdings and XP Inc. This suggests a strategic reallocation rather than a general market retreat, potentially indicating a preference for different segments or companies within the Brazilian financial ecosystem.

Looking ahead, StoneCo's future outlook will heavily depend on its ability to navigate the challenges highlighted by the bear case. Successfully diversifying revenue streams beyond core payments, managing credit risk effectively, and adapting to the evolving regulatory and competitive landscape will be paramount. The company's upcoming earnings report will be a crucial event, as investors will be keen to see if management addresses these concerns and provides a clear path to sustainable profitability. While the average analyst price target of $17.50 (or $20.24 from Fintel) still implies some upside from the current $17.08 price, Atmos Capital's move serves as a stark reminder that even seemingly undervalued stocks with strong growth narratives can carry significant, often less visible, risks that can deter long-term institutional capital.

What Should Investors Watch For Next?

For investors holding StoneCo or considering an entry, Atmos Capital's decisive exit serves as a powerful reminder to look beyond headline performance and analyst ratings. The fund's action underscores the importance of a thorough, independent assessment of the company's fundamentals and the broader market dynamics. It's a call to scrutinize the risks as much as the opportunities.

Moving forward, there are three key areas to watch closely. First, pay attention to StoneCo's upcoming earnings reports, particularly focusing on the profitability of its credit segment and any commentary on loan loss provisions. Second, monitor the competitive landscape in Brazil, especially the impact of PIX and new entrants on transaction volumes and pricing power. Finally, observe any strategic shifts or leadership changes within StoneCo that might address these underlying concerns, as well as any further institutional investor activity that could signal a broader trend.

The market is a complex interplay of narratives and data. While StoneCo has demonstrated a strong rebound, Atmos Capital's divestment suggests that the story is far from simple. Investors should remain vigilant, conduct their own due diligence, and consider whether their risk tolerance aligns with the evolving realities of the Brazilian fintech market.

The complete divestment by Atmos Capital from StoneCo is a significant event that warrants careful consideration. While the stock has seen a strong rebound and enjoys positive analyst sentiment, the fund's move highlights persistent operational and strategic risks. Investors should prioritize a deep dive into StoneCo's credit quality, competitive pressures, and regulatory environment to make informed decisions.

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