On Wednesday, Goldman Sachs (NYSE:GS) adjusted its stance on DLocal Limited (NASDAQ:DLO), downgrading the stock from Buy to Neutral and significantly reducing the price target to $8.00 from the previous $16.00. The revision follows a period of performance that saw DLocal shares decline by 38% over the past 12 months, which contrasts with a 11% drop in the MSCI LatAm index.
The firm's analyst cited multiple factors contributing to the less optimistic outlook for DLocal. Challenges include foreign exchange devaluations in several key markets such as Argentina, Nigeria, and Egypt, a shift in volumes to local-to-local transactions resulting in continued declines in take rate, and an increase in expenses that is putting pressure on profit margins.
Despite the late timing of the downgrade, Goldman Sachs believes that downside risks to the company's guidance persist. The stock's current valuation is at 20.5 times the estimated 2024 earnings per share (P/E), which is in line with global payment peers but more than double that of Latin American payment peers.
The earnings forecast for DLocal is also a concern, with an expected 29% decrease in earnings per share (EPS) for the current year. This anticipated decline suggests potential downside risks to the consensus estimates. Moreover, the firm indicates that there is still limited visibility in the evolution of gross profit and take rate for DLocal.
In other recent news, DLocal has been the center of attention due to its mixed Q1 2024 earnings results. The company reported an impressive nearly 50% year-on-year total payment volume (TPV) growth, reaching $5.3 billion, primarily driven by a surge in e-commerce and remittances. Despite the robust TPV figure, DLocal's financial results were mixed, with a revenue growth exceeding 30% year-on-year, but flat gross profit growth and a decline in adjusted EBITDA.
In response to these results, UBS and Citi have revised their stance on DLocal. UBS upgraded the stock from Sell to Neutral, adjusting the price target to $9.00 from $13.00, while Citi maintained a Neutral rating but reduced the price target from $17.00 to $10.50.
DLocal also announced a $200 million share buyback program and is considering potential mergers and acquisitions to enhance its offerings.
InvestingPro Insights
In light of Goldman Sachs' recent downgrade of DLocal Limited (NASDAQ:DLO), real-time data and insights from InvestingPro provide additional context for investors considering the company's financial health and stock performance. DLocal's market capitalization stands at approximately $2.21 billion, with a current P/E ratio of 17.21, indicating investor expectations for future earnings growth. The company's revenue has seen a significant uptick, with a growth of 48.8% over the last twelve months as of Q1 2024, showcasing its ability to expand despite market challenges.
Two notable InvestingPro Tips for DLocal include the company's aggressive share buyback strategy, which can signal confidence from management in the company's value, and the fact that the stock is trading near its 52-week low. These insights suggest a potential entry point for investors, as the stock may be undervalued. Additionally, the RSI suggests the stock is in oversold territory, which could indicate a possible rebound in the near term.
However, investors should also be aware of the concerns highlighted by InvestingPro, such as the three analysts who have revised their earnings downwards for the upcoming period and the stock's poor performance over the last month, which aligns with Goldman Sachs' cautious stance. For those interested in further analysis, there are additional InvestingPro Tips available, which can provide a deeper understanding of DLocal's position in the market. To access these insights, consider using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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