StoneCo (STNE) Gave JDP Capital a Spectacular 370% Return

JDP Capital Management, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A spectacular net return of 109.4% was recorded by the fund for the year end 2020, outperforming its S&P  500 benchmark that returned 18.4%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

JDP Capital Management, in their Q4 2020 Investor Letter said that their investment in StoneCo Ltd. (NASDAQ: STNE) has been a core holding since early 2019. StoneCo Ltd. is a financial technology solutions provider that currently has a $22.1 billion market cap. For the past 3 months, STNE delivered a decent 36.85% return and settled at $71.90 per share at the closing of January 29th.

Here is what JDP Capital Management has to say about StoneCo Ltd. in their investor letter:

“Stone has been a core holding since early 2019 when we bought the stock at a 20% discount to the 2018 IPO price. The stock is up 220% from our initial investment and 370% since we doubled down on the position in April 2020. I wrote my research trip to Brazil in the 2019 Annual Letter and the insightful ground-level access the company gave me to a sales “Hub” operation in Sao Paolo.

Despite the recent run in the stock price, we think the company’s earning power is more attractive than when we first invested. Management has exceeded our expectations on how quickly they can layer on new, ultra-high ROI financial products to their customer base of small, medium and micro merchants.

Stone’s mission is to replace traditional bank relationships with its own platform which was purposely built for the country’s ~11 million SMBs (small, medium businesses). The majority of Brazil’s economy is driven by small businesses and many are grossly underserved by traditional banks.

In the past year, and in the face of COVID, Stone grew its SMB client base by 42% to 583,000, or about 5% of the market. The market is fragmented, competitors are a combination of one other major Fintech giant and financial service resellers linked to big-bank products.

Stone started its business by offering card processing terminals and credit card receivables factoring with white-glove-like customer service which was unheard of among payment processors.

Today Stone offers a suite of back-office software for accounting/inventory/payroll to make their clients more efficient and transparent, including enabling brick and mortar sellers to move online. The company also offers digital bank accounts, vendor payment services and working capital loans. Stone has built a pipeline to continue laying on new products such as insurance, stock brokerage and payday loans.

Stone’s unique window into the day-to-day profitability of its merchants allows it to underwrite risk on a merchant-specific basis in a way that traditional banks cannot. The company’s scale and reputation allow it to use third-party capital to fund risk products without taking much balance sheet exposure.”

Shannon River Fund Management's Returns, AUM and Holdings

Sergey Nivens/

Last December 2020, we published an article telling that StoneCo Ltd. (NASDAQ: STNE) was in 38 hedge fund portfolios, its all time high statistics. STNE delivered a 65.52% return in the past 12 months.

Our calculations show that StoneCo Ltd. (NASDAQ: STNE) does not belong in our list of the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website.

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