KeyStone’s Stock Talk Podcast Episode 166

We’re back following two sold-out Live Webinars over the past couple of weeks. One of the topics spoken about at the presentation was the concept of price vs. value in the broader context of the Stealth Technology Stock Crash the markets have experienced over the past year. I will touch on that today. Additionally, Aaron is prepped and ready to discuss investing in dividend growth stocks in high inflation, and rising interest rate environment. In the segment, he will look at Brookfield Infrastructure Partners L.P. (BIP.UN: TSX), a long-term Focus BUY in our Canadian Income/Dividend research as a great way to battle inflation. Our first YSOT this week comes from a listener on AcuityAds, a company we happened to just meet with the management team in person over the last couple of weeks. AcuityAds operates in the AdTech industry providing marketers a solution for digital advertising. The listener notes the stock is down 87% from its high in the range of $32 in February of last year to the $4 range today – he asks if this cash-rich small-cap is on sale. Finally, in a Stock Vs. Stock segment, Brennan answers a client question on two US-listed Brazilian Fintech stocks StoneCo and PagSeguro? He asks which we would throw our dollars behind.


We completed our live webinars – the first to start in 2022. Sold out…but you can still get the On-Demand version which included everything you need to know about building a simple 15-25 stock portfolio and most importantly what stocks to put in it. 7 Stock Starter Portfolio…just go to and order it!

“Price is what you pay, value is what you get.”

One of the topics we went in-depth on in the Webinars was “The Stealth Tech Crash & Potential Buying Opportunity” – including the concept that, “Price is what you pay, value is what you get,” a quote uttered famously by Warren Buffett in his 2008 annual letter to the Berkshire Hathaway’s shareholders. We touched on the Stealth Crash and the opportunity to buy great tech business long-term in the event it continues in a past show and really into depth in the Webinar if you are interested. Today, and in part of that section, I will discuss price and value.

Price and value are two sides of the same coin. Understanding the difference between price and value is the core principle of value investing. It is core to KeyStone’s hybrid strategy which involves buying growth & dividend growth stocks that offer GARP or growth at a reasonable price. Not the cheapest stocks on the market, nor will we pay anything for a business – we look for reasonable price, for a good business.

 Unfortunately, that principle has been largely ignored over the past 12-18 months by investors chasing growth at any price and it is coming home to roost.

This is precisely why you need to pay special attention to the value of what you are getting in today’s market.

Euphoric Buying of Growth & Technology “Disruptor” Stocks

Investors buy stocks symbols (price) with little consideration for value.

Fueled by cheap money, record stimulus, and low rates.

Many growth-oriented “disruptors” traded at 50-150 times sales with limited to no cash flow. The poster child for this is the Ark Innovation Fund, run by recent market darling, Cathie Wood – which other than Tesla, does not own any of the mega-cap 8 the FaceBooks, Alphabets, Apples, Microsofts etc.  The fund owns a number of potential “disruptors” and innovation stocks. To be clear, the fund performed very well for a 4-5 year run as money piled into these stocks.

But, the Ark ETF has lost billions with its unit price down 38% in the last 3-months and approximately 50% over the past year.

It turns out, that valuations matter (particularly when we face uncertainty – including inflation, rising rates, and dwindling stimulus.

As inevitable as Thanos (or more appropriately death and taxes), the market tends to remind you, that one cannot just pay any price for most stocks.

And, in my opinion, many of the top holdings in this fund were trading at unrealistic valuations. Let’s take a look at the valuations on the top holdings in the fund now – after many have dropped 50%+ percent in value – are they attractive now?

We will take the giant Telsa out of the equation – although its valuations are certainly elevated.

To give you some context: the average market PE is 22.5 at present. Only one top holding in the Ark fund has a PE of under 30 – Coinbase – and its earnings are actually expected to decline in the coming year. 7 of the 12 companies do not have any current earnings or even adjusted earnings and while the price-to-sales multiples have decreased, historically they remain high.

Again, most of the stocks in this fund have lost 50% of their value this past year, so one can only imagine the valuations on average in the fund 3 and six months ago before the stealth correction. Many traded at 50-100 times sales – particularly the SaaS business. I will give you an idea of how overvalued these businesses were – here is a quick breakdown on the peak valuations of some of the best true disruptive tech companies over the past couple of decades.

As you can see – even in this list of true once-in-a-lifetime investments, not one ever came close to a price-to-sales multiple of even 45. In this context – with euphoric tech and risk asset valuations, stimulus receding, and inflation and interest rate worries – the sell off is not surprising…value matters again.

Next week – I am going to get into what you can do in your portfolio…specifically in reference to inflation and rate hikes…

But I will let my co-hosts comment on the valuation we saw in tech over the last 12-18 months and what we are seeing today.



YSOT: AcuityAds Holdings Inc. (AT:TSX)

Price: $4.06

Market Cap: $246.88 Million.

Portfolio: MONITOR


Company Description:

AcuityAds is a technology company in the AdTech industry that provides marketers a solution for digital advertising. It operates an advertising platform that brings programmatic and automated capabilities using proprietary artificial intelligence technology. The real growth in the business is coming from its self-serve platform called illumin. In the fourth quarter revenues from the Illumin platform jumped to  $10.17 million from $946,970 in Q4 2020.

Recent Financial Results:

Q4 2021 revenue was $36.8 million, an increase of 5% from $35.06 million for the three months ended December 31, 2020

Q4 2021 Adjusted EBITDA was $5.87 million, a decrease of 25% from $7.82 from Q4 2020. The year-over-year decrease in Adjusted EBITDA was primarily attributable to higher operating expenses.

Net income for the quarter was $2.47 million, a decrease of 40% from $4.16 million for the three months ended December 31, 2020.


As of December 31, 2021, AcuityAds had cash and cash equivalents of $102.2 million, compared to $22.6 million as of December 31, 2020. The company has minimal debt in the range of $6.8 million producing net cash in the range of $95.4 million.


AcuityAds continues to hold solid potential and looks to grow revenues in both 2022 and 2023, but following a weaker Q4 2022, questions of profit margins and growth therein remain. The company has a very strong balance sheet with net cash in the range of $95 million. Trailing valuations look attractive on an EV/EBITDA basis in the range of 7.2 times 2021 numbers. Cash out, the company trades at a relatively attractive 13.8 times 2021 earnings and 21.4 cash in. Having said this, without official guidance from management analysts 2022 estimates are for at best level earnings in 2022 or at worse a significant decline. In the absence of guidance in terms of profit growth near-term, despite a great balance sheet which provides cash for acquisitions, we continue to rank it as a company we monitor and are not buying near-term.


Stock Vs. Stock

Tyler – (who is a client) says: “I am wondering which horse I should be betting on in the Brazilian Fintech space, StoneCo or PagSeguro? Or should I potentially be allocating capital to both?”


PagSeguro Digital Ltd. (PAGS:NYSE)


StoneCo Ltd. (STNE:NASDAQ)

PagSeguro is a provider of financial technology solutions focused primarily on consumers, micro-merchants, and small-to-medium-sized companies in Brazil.


The business model covers five pillars:

·      Multiple digital banking solutions.

·      In-person payments via point of sale (POS) devices.

·      Free digital accounts with functionalities such as bill payments, top up prepaid mobile phone credit, wire transfers, peer to peer cash transfers, prepaid credit cards, cash cards, loans, investments, QR code payments, and payroll portability, among other digital banking services.

·      Issuer of prepaid, cash and credit cards.

·      Operate as a full acquirer.


StoneCo is a provider of financial technology and software solutions that empowers merchants to conduct commerce seamlessly across multiple channels.


The company offers two business segments:

·      Financial Services (72% of Revenue)

o   POS system for Merchants. Plus, platform services.

·      Software (18% of Revenue)

o   Workflow tool for merchants, including POS and ERP solutions.

o   Digital & Omnichannel Solutions.

Key Points: (PagSeguro)

·      August 2021 announced the acquisition of Concil, a provider of numerous plugins for ERP systems.

·      April 2021 launched PagPhone, the first device in the world which is a smartphone, POS and diogital bank. (all designed for the Brazilian entrepreneur).

·      February 2021 announced it would launch a new service enabling clients to buy, hold and sell cryptocurrencies.

Key Points: (StoneCo)

·      August 11, 2020, Stone announced that it has signed a definitive agreement for STNE to merge its business with Linx – a leading technology company that develops and provides integrated software solutions for retail management.

·      During Q4 the company reorganized into two segments – Financial Services (Stone) and Software (integrating Linx and its portfolio companies under one leadership team).

·      Since mid-2021 the company has been rebuilding its credit product to simplify user experience and improve risk monitoring.

o   The company struggled with higher provisions in Q3 & Q4, with growing bad loans forcing it to halt lending.


Financials (Q4 2021) [Brazilian Real]:

·      Revenue grew 55% to R$3.2B

·      Adjusted EBITDA was R$750 million, up 3.4% Y-o-Y.

·      Adjusted Net Income was R$426 million, down 1% Y-o-Y.

·      Balance Sheet – Net Cash of R$788 million.


Financials (Q4 2021) [Brazilian Real]:

·      Revenue grew 87% to R$1.9B.

o   27% Growth was from the Linx merger.

·      Adjusted EBITDA was R$685 million, up 30% Y-o-Y.

·      Adjusted Net Income was R$33.7 million, with a 1.8% net margin. Down 90% Y-o-Y.

o   The company is anticipating margins to expand in 2022.

·      Balance Sheet – Net Debt of R$1.2B

Valuations: (PagSeguro)

·      EV/EBITDA = 5.9

·      EV/FCF = 8.6

·      P/E = 11.0

Valuations: (StoneCo)

·      EV/EBITDA = 9.9

·      EV/FCF = Negative

·      P/E = 67.5 times

o   Q1 22 R$140M – even if we annualize this, we are still getting a P/E of 25x.


Now to conclude between both PagSeguro and StoneCo. Both are clearly higher risk stocks, having geopolitical risk with operations in Brazil as well as being exposed to lending (which severely impacted StoneCo in the last few quarters).

Personally speaking, I believe at this point in time PagSeguro offers better value between the two, even though its growth has been slower. And I am coming to this conclusion based on a healthier balance sheet, much better profitability, better historical operations (especially in regard to managing credit risk) and of course valuation trailing valuations.

Further areas of research that I didn’t touch on in this quick analysis would be to see how much of each company’s growth is organic compared to from acquisitions. We should also look at the composition of each company’s loan portfolio, as StoneCo looks to be lending to higher-risk individuals, as well as the growth of these loan portfolios.

And lastly, I must indicate that I am not saying either of these companies meet KeyStone’s investment criteria or would be recommendations, but I am simply stating which investment opportunity I believe offers better value, and risk to reward going forward.

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