Nu Holdings (NU 0.58%) and StoneCo (STNE -2.45%) may not seem like obvious choices for fintech investors at first glance. They operate mostly in Brazil and thus garner little attention from U.S.-based investors.

However, they have attracted investments from Warren Buffett and his team at Berkshire Hathaway. This interest could leave investors wondering which fintech stock could better serve the average investor.

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How the enterprises compare

Determining which stock offers more potential requires that investors first understand the nature of fintech in Brazil. Brazil is a cash-based society in which large portions of the population lack credit cards, debit cards, and bank accounts. This means that a company like PayPal (PYPL 0.94%) cannot serve many Brazilians.

Both Nu and StoneCo have addressed this market in different ways, so much so that they do not compete directly with each other. Nu approaches this market by offering financial services to individuals and businesses through its Nubank digital service platform. The company provides financial products such as bank accounts, credit cards, personal loans, and life insurance.

It has attracted over 54 million customers, and it has ventured beyond Brazil, expanding to both Mexico and Colombia. Thanks to Nubank, more than 5.1 million people have opened their first bank account or credit card.

Conversely, StoneCo serves the consumer indirectly, targeting businesses in a way comparable to Block (SQ 2.48%) in the developed world. It offers point-of-sale and technology management solutions to help enterprises accept multiple payment types, expand e-commerce payment options, manage their financials, and automate processes.

It also stands out by giving its reps an "owner mindset," allowing them the flexibility to resolve client issues rapidly. Additionally, it can open an office quickly in any locality and promptly train a salesforce should demand for its products and customer service rise in a given area. This has helped it recruit nearly 492,000 active clients (with deposits of at least the $400 million U.S. equivalent) and about 200,000 subscribed software customers.

In addition to different customer bases, both stocks have taken different paths. StoneCo launched its IPO in 2018, while Nu stock debuted in December 2021, though they both received early investments from Buffett's team. And despite the later IPO, Nu is a much larger company. It maintains a $35 billion market cap versus just $4 billion for StoneCo.

Company financials

With that IPO, Nu just released its first earnings report. In 2021, it reported $1.7 billion in revenue, a 130% increase compared with 2020. With a 116% surge in operating expenses and lower income taxes, Nu cut its 2021 losses to $165 million, down from $171 million in the prior year.

In comparison, Stone brought in 4.8 billion reais ($950 million), a 45% increase from year-ago levels. This led to an adjusted net income of 203 million reais ($40 million), a 79% drop over the same period. Net income fell due to the massive increases in company expenses, mainly coming from its acquisition of Linx (a tech company that's specialized in the retail sector) in 2020. It also experienced rising financial expenses due to surging prepayment volumes and higher costs for funds.

Although this represents a period of just over three months, both stocks have fallen since Nu's IPO launched. Also, Nu remains the more expensive stock. It trades at an astounding 41 times sales, compared with a price-to-sales ratio of just 6 for StoneCo. This makes Nu roughly seven times as expensive as StoneCo on a valuation basis. It may also partially explain why Nu's market cap is almost nine times the size of StoneCo's even though it generates nearly double the amount of revenue. That difference could make it difficult to justify Nu Holdings' big valuation.

Nu Holdings or StoneCo?

Given the growing demand for fintech products in Brazil, both companies hold tremendous potential to deliver returns for Buffett and his followers. Nonetheless, valuation differentials probably make StoneCo the preferred choice for most investors.

Admittedly, Nu looks positioned to grow faster, and it more fully addresses the lack of access to the banking system that hampers Latin American fintech. Still, with StoneCo addressing business's fintech and enterprise software needs for a small fraction of Nu's multiple, it offers a more compelling value proposition.