Headquartered in Uruguay, dLocal Limited (DLO) is a technology-first payment platform operating internationally. It connects global enterprise merchants with billions of consumers across several emerging markets. The company went public through a traditional IPO listing on the Nasdaq stock exchange on June 2, 2021. However, shares of DLO lost 25% since its stock market listing due to the bearish market sentiment and extended tech sell-off.

DLO reported its fiscal first-quarter earnings report on May 17, 2022. The company’s revenues increased 117% year-over-year to a record $87.50 million. Its total payment volume (TPV) rose 127% from the same period last year to $2.10 billion. Adjusted EBITDA came in at $33 million, up 84% from the prior-year quarter. Gross profit rose 87% from the year-ago value to $43.60 million. EPS improved 33.3% from the prior-year quarter to $0.08. The stock gained 19.6% since its earnings report release.

Regarding this, DLO CEO Sebastian Kanovich said, “Our performance this quarter reinforces our strong growth momentum, and we expect to continue delivering growth supported by the performance of our existing and new merchants using our platform.”

However, DLO’s adjusted EBITDA margin declined 600 basis points year-over-year to 38%. Also, the company’s TPV growth rate decelerated year-over-year.

Here’s what could shape DLO’s performance in the near term:

Industry Headwinds

Latin American countries are some of the worst affected by the COVID-19 pandemic. According to World Bank estimates, Latin America’s regional GDP is projected to increase by 2.3% in fiscal 2022 and 2.2% in 2023. The region’s GDP growth projections are among the lowest in the world. This can be attributed to sky-high inflation rates and hawkish monetary policies. The regional inflation in Latin America rose 90 basis points sequentially to 14.5% in April due to elevated commodity prices and global geopolitical uncertainty.

While DLO stated in its fiscal first-quarter results that it has no exposure to Russia or Ukraine. However, the economic and logistics challenges stemming from the war have caused DLO’s growth rate to decelerate. However, the demand for DLO’s services might decline in the near term due to the increasing social costs of the pandemic. Poverty rates excluding Brazil increased by 2.7%, the highest level in decades, while the share of formal employment declined by 5%.

Premium Valuation

In terms of forward non-GAAP P/E, DLO is currently trading at 56.04x, 210.3% higher than the industry average of 18.06x. Its trailing-12-month PEG ratio of 1.25 is 170.1% higher than the industry average of 0.46.

Also, the stock’s forward EV/EBITDA multiple of 43.17 is 258.2% higher than the industry average of 12.05, while its forward EV/Sales ratio of 15.78 is 466.3% higher than the industry average of 2.79. Its Price/Sales ratio of 16.74 is 504.2% higher than the industry average of 2.77. In addition, DLO’s forward Price/Cash Flow and Price/Book multiples of 43.20 and 17.25 compare with industry averages of 16.56 and 3.77, respectively.

POWR Ratings Reflect Bleak Prospects

DLO has an overall rating of D, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

DLO has a grade of D for Stability and a C for Value. The stock’s relatively high 2.35 beta is in sync with the Stability grade. Moreover, DLO’s frothy valuation multiples compared to its peers justifies the Value grade.

Of the 49 stocks in the D-rated Consumer Financial Services industry, DLO is ranked #39.

Beyond what I’ve stated above, view DLO ratings for Growth, Momentum, Sentiment, and Quality here.

Bottom Line

Given the increasing tech integration of emerging markets, DLO’s technology-first payments platform is gaining traction. However, given Latin American countries’ bleak GDP growth prospects and rising poverty rates coupled with looming global recession risks, the company might witness a decline in user base in the upcoming months. Thus, DLO is best avoided now.

How Does dLocal (DLO) Stack Up Against its Peers?

While DLO has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Ezcorp Inc. (EZPW), Regional Management Corp. (RM), and OneMain Holdings, Inc. (OMF), which have a B (Buy) rating.

DLO shares were trading at $23.86 per share on Monday morning, up $0.15 (+0.63%). Year-to-date, DLO has declined -33.15%, versus a -16.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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