PagSeguro Digital Ltd. (PAGS): A Bear Case Theory

We came across a bearish thesis on PagSeguro Digital Ltd. (PAGS) on Quipus Capital’s Substack. In this article, we will summarize the bears’ thesis on PAGS. PagSeguro Digital Ltd. (PAGS)’s share was trading at $8.78 as of 6^th June. PAGS’s trailing and forward P/E were 7.23 and 6.56 respectively according to Yahoo Finance.

PagSeguro Digital Ltd. (PAGS) operates as a Brazilian payment processor with a core business model built around receivables discounting rather than payment processing itself. While many assume that PAGS earns margins on payment transactions, the reality is that most of the take rate is paid out in interchange and transaction fees, leaving processing effectively commoditized.

The real profit engine is in advancing payments to merchants on credit card sales in exchange for a 2% monthly discount fee, amounting to annualized rates of 25–30%, with minimal risk, as receivables are guaranteed by banks or card networks. This business is especially viable among micro and small merchants, who lack access to traditional credit.

However, the company’s growth is constrained by a saturated market; PAGS now grows in line with Brazil’s GDP plus inflation, and its receivables remain capped at roughly 30–35% of TPV. Further, the looming launch of PIX Parcelado threatens to disrupt the receivables model, allowing banks to offer credit-based instant payments that bypass PAGS entirely on the lucrative discounting side. Although PAGS could theoretically expand into other lending products, it lacks both the scale and risk infrastructure to compete with Brazil’s established banks.

In a best-case scenario, PAGS maintains current spreads, leverages its low-risk balance sheet, and grows EPS via share buybacks. At a 7x P/E, the stock could deliver a 14% return from buybacks alone, with 5–7% BRL-denominated growth on top. Yet, investors must weigh this against significant structural risk, particularly from PIX, and limited runway for long-term business expansion.

Previously, we summarized a bullish thesis on Block, Inc., highlighting its evolution into a vertically integrated fintech ecosystem spanning consumer finance, business services, and AI-powered infrastructure, supported by scale advantages in Cash App and Square, improved profitability, and underappreciated assets like Tidal. Together, these theses capture a broader fintech divide: one leaning into innovation and ecosystem synergy to unlock durable value (Block), the other constrained by structural ceilings and rising platform risk (PagSeguro).

PagSeguro Digital Ltd. (PAGS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held PAGS at the end of the first quarter which was 36 in the previous quarter. While we acknowledge the risk and potential of PAGS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.