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StoneCo – Not a Marijuana Stock (STNE)

Posted on January 7, 2021

Today’s underlying is an ecommerce outfit based in the Cayman Islands, banking home of the independently wealthy, both criminal and hard-working.

They call themselves StoneCo (NASDAQ:STNE), and they claim to facilitate financial transactions for small business in Brazil.

Of all things…

Fundamentally speaking, StoneCo has some dastardly numbers:

  • P/E is 414.63,
  • P/B is 8.17, and
  • There is no dividend on offer.

Granted, she’s an online business – and that explains, at least in part, the inflated metrics – but with 6000 employees, we’re beyond start-up stage growth numbers.  So something’s amiss.

 

Maybe Investors Are Stoned?

A scan of the company’s press releases reveals little in the way of thrill-inducing buy signals.

Yes, Berkshire Hathaway owns a chunk of the company, and yes, that’s exciting.

But at some point, buying must needs exhaust itself.

And we believe that time is now – for now.

Have a look at the daily chart for the last year –

Technically, we don’t like –

  • The second RSI overbought read in five weeks (in green),
  • A MACD rollover that looks to be gathering steam,
  • A perfect 90 degree GANN rebound (in red) that points to a top, after
  • A head-shaking 350% rise off the Batflu bottom that separated price from her MAs to an exaggerated degree (in blue).

The weekly chart is also problematic, because here, too, we have an overbought RSI signal –

  • A weekly RSI overbought (in green) – combined with a daily – is outright NEGATIVE (in all caps 😜).
  • MACD, too, looks to be losing steam, while
  • Volumes (in blue) have fallen off precipitously toward the top (even given expected end-of-year holiday action).
  • We have a simple Fibonacci retracement expectation of STNE 61.

And we’re playing it as follows –

A Jew and His Gold recommends you consider buying the STNE February 19th 77.50/67.50 PUT spread for $3.95 (5.40/1.45).

Rationale: when the great sucking sound is heard across the land, STNE will drop like a … well, you get the picture.

Maximum gain on the trade is $6.05 (difference between the strikes less initial debit).

Maximum loss is limited to the initial debit – $3.95.

Breakeven for the trade is STNE $73.55 (current price is $77.95).

Many happy returns,

Matt McAbby

 

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