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

We came across a bullish thesis on PagSeguro Digital Ltd. on Value investing subreddit by KraticCapital. In this article, we will summarize the bulls’ thesis on PAGS. PagSeguro Digital Ltd.’s share was trading at $10.43 as of January 12th. PAGS’s trailing and forward P/E were 7.69 and 6.98 respectively according to Yahoo Finance.

PagSeguro Digital Ltd. (PAGS), a Brazilian fintech founded in 2006 and IPO’ed in 2018, provides payment processing for digital and physical merchants, alongside digital banking and financial services for individuals and businesses. Despite strong historical growth—with net income and revenue CAGRs of 15% and 27% from 2018–2024, respectively—the stock trades at a P/E of ~7 and near book value, signaling a wide margin of safety. The company’s profitability is highly sensitive to Brazilian interest rates, which currently stand at 15%, as its prepayment service requires funding to advance merchant payments.

Each 1% drop-in rates could increase annual pre-tax profits by ~$60 million, highlighting potential upside from expected rate cuts in early 2026. PagSeguro maintains a strong cash position of ~$1.8 billion after funding liabilities, reflected in a Basel Ratio of 30% and ROAE of ~14–15%. Management has been actively returning capital via buybacks and dividends, with a total expected capital return yield of 16% in 2026, alongside guidance for net income growth of 11–15% in 2025. Over the longer term, management expects EPS CAGR of >16% and gross profit CAGR of >10% through 2029, with a rapidly expanding credit portfolio.

Risks include competition from banks, fintechs, and the growing adoption of PIX, Brazil’s instant payment system, which could reduce fee income and the need for prepayment services. While market share in payment processing has slightly declined due to fee repricing, PagSeguro benefits from its broad service ecosystem and the backing of UOL, which controls 85% of voting power, providing strategic stability. Overall, PAGS offers a compelling risk/reward, with undervaluation, strong capital returns, macro tailwinds, and growth potential in both payments and digital banking.

Previously we covered a bullish thesis on PagSeguro Digital Ltd. (PAGS) by The ROI Club in November 2024, which highlighted its capital-light model, strong ROIC, digital payments growth, and expanding credit portfolio. The stock has appreciated approximately 23.87% since our coverage, as the thesis played out. The thesis still stands, while KraticCapital shares a similar view but emphasizes interest rate sensitivity, cash position, and PIX-related risks.

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Disclosure: None.