No stock remains hidden once Warren Buffett notices it. That's why Nu Holdings (NU -0.46%), a small but growing Brazilian bank stock, has come onto many investors' radars. It has traded for less than $10 for most of its life as a public company, and it's down 56% since its initial public offering (IPO) almost a year ago. Should you follow Buffett into a position here?

Breaking into Brazilian banking

Nu has attempted to offer a different kind of banking experience in its home market of Brazil. It's a digital customer-focused bank that offers low-cost and easy-to-use banking solutions. This was a new concept when the bank launched in 2013. Brazil is dominated by five large banks that together account for about 80% of total banking market share, and a slew of digital banks and fintech companies has cropped up recently to grab some of the tightly held market.

Nu has ambitious goals, targeting both personal accounts and small business accounts with a range of financial services like bank accounts, loans, insurance products, credit cards, and more. It's the No. 1 credit card issuer in its three markets of Brazil, Mexico, and Colombia.

A massive market opportunity

As of last year, about 10% of the adult population in Brazil did not have a bank account. Most of this group is uneducated and tends to live in remote areas, where there isn't easy access to a physical bank. Of those who do have a bank account, almost 80% don't engage with other financial services, such as investing and credit. That means the overall market, with a population in Brazil of more than 200 million people, is ripe for disruption. It's not surprising that so many fintechs are attempting to capture market share.

Resonating with customers

Nu has posted impressive growth. It added 5.7 million customers in the second quarter, bringing the total to 65.3 million -- 23.6 million more than last year. Revenue increased 230% to $1.2 billion. Considering that it's a low-cost alternative to the bigger banks, Nu is figuring out how to monetize its base and drive volume, through recruiting customers, cross-selling, and upselling, to generate higher revenue. For example, deposits increased 87% over last year to $13.3 billion.

The customer activity rate was 80%, a record, indicating that customers are engaging with and deriving benefit from the platform. There are 62 million Nu account holders in Brazil, the company's core market, or 36% of the adult population, and 55% of customers use Nu as their primary bank. Not only is Nu resonating with the underbanked population, but it's also resonating with the overall population.

It's also making waves in some of its newer markets. In Mexico, it increased account holders by 500% over last year, to 2.7 million.

What makes it a Buffett stock?

There are several features that make a Buffett stock, and Nu has some of them, but it's not a classic Buffett pick. He typically looks for undervalued stocks, which means that they're trading at prices that are below what looks like their intrinsic value. He also likes established, dividend-paying stocks, and Nu's not one of those. But he favors bank stocks, because he sees them as value plays. He has explained that, "They're very good investments at sensible prices ... and they're cheaper than other businesses that are also good businesses by some margin."

Nu doesn't look undervalued, even at this price. It's trading at more than seven times trailing-12-month sales, which is expensive, especially for a bank stock, and even for a fintech in the current environment. It also trades at almost five times book value, which is extremely expensive and suggests the stock is overpriced.

What Buffett may be seeing is the company's potential. It's growing quickly, and as it adds customers, revenue, and deposits, it's likely to begin to better resemble a classic bank stock. Bank stocks have a lot of cash and they power the economy, and that itself makes them valuable to own. Nu is on its way to profitability as well, with a $13 million profit in the Brazilian business in the first half of 2022. As it scales and begins to make money consistently, its valuation is likely to come down and it will look more like a value play.

Nu shares trade at $4.65 as of this writing. Buffett followers and those with high tolerance for risk may want to take a small position at this price, but most investors will want to wait until the stock offers a more compelling entry point.