Key Points:

• PagSeguro is taking market share in a growth market and is doing so profitably.
• If Williams-Sonoma can keep its profit margins up like management says, then it’s poised to return an astronomical amount of cash to shareholders over the next few years.

PagSeguro

• PagSeguro is a high-growth, profitable fintech company.
• In 2022, its revenue was up 47% from 2021, reaching $2.9 billion.
• The company offers a comprehensive list of financial services, including payments, banking, and loans.
• PagSeguro’s market share in payments increased from 1% in 2016 to 11% in 2022.
• It had a successful IPO in early 2018 and has been profitable every year since then.
• The stock trades at a P/E ratio of just 10.7, a steep discount to the S&P 500’s average valuation.
• With 28.7 million clients for PagBank, there’s still plenty of room for growth in Brazil.
• Only 55% of Brazil’s population uses cards for payments, indicating significant potential for non-cash payments to increase.
• The market is uncertain regarding Brazilian politics and economy, adding some risk.

Williams-Sonoma

• Williams-Sonoma is a home furnishings retailer.
• The stock is cheap at 8.4 times earnings.
• The market doubts the sustainability of Williams-Sonoma’s operating margin.
• Management expects at least a 15% operating margin, but historical data shows an 8% to 10% range is more common.
• The surge in e-commerce sales during the COVID-19 pandemic raises concerns about future operating margins.
• Despite doubts, Williams-Sonoma can create long-term value for shareholders with an operating margin even at 10%.
• With a long operating history, profits, and zero long-term debt, it has a strong financial position.
• If the 15% operating margin is sustained, the stock is absurdly cheap with significant potential for shareholder returns.
• It returned over $3.2 billion to shareholders from 2018 through the end of 2022.

Conclusion

Both PagSeguro and Williams-Sonoma are financially sound companies with growth opportunities and cheap stock prices. PagSeguro offers investors growth and value in one stock, while Williams-Sonoma has the potential to return significant cash to shareholders if its operating margin remains elevated. These two stocks stand out from the crowd and have viable paths to creating value for shareholders, making them attractive investments for long-term investors.