What happened
Shares of Brazilian fintech company Nu Holdings (NU 2.83%) gained 14% in January, according to data provided by S&P Global Market Intelligence. The month did not feature any significant news about Nu, but investors' reviving confidence in the economy and the market broadly lifted many stocks. Nu has been posting robust growth, and investors are optimistic about its future.
So what
Nu is based in Brazil, and it offers digital banking services in that nation, Mexico, and Colombia. It already has 39% of the adult population in Brazil as members, and its total customer count increased by 46% year over year in the third quarter to more than 70 million. In all three of its current markets, its business has a long runway for growth.
The company has been posting tremendous growth by an array of metrics. Revenue increased by 171% year over year to $1.3 billion in the third quarter, with monthly average revenue per active customer (ARPAC) rising 61% to $7.90. Nu's growth strategy revolves around increasing customer engagement with its various financial products, and its ARPAC reflects how that's going, which is why investors should keep an eye on it from quarter to quarter.
Nu hit a milestone in the third quarter: It delivered positive net income for the first time -- $7.8 million.
Now what
Nu is also a Warren Buffett stock. Berkshire Hathaway invested in the company before it went public in 2021. Buffett favors banks as investments because those institutions are usually flush with cash. He also usually likes to buy undervalued stocks, but Nu doesn't look like it falls into that category. In many ways, it's a classic growth stock. But the cash element might give it a level of stability that's less common for growth stocks.
Nu Holdings' stock price is still down by 33% over the past 12 months. At their current price, the shares trade at a price-to-sales ratio of 9. Even though the stock price is less than $5 as of this writing, that's a hefty valuation. Considering Nu's growth prospects, it might be a reasonable premium, and I would say that valuation is the only issue with Nu stock. The company will report its fourth-quarter results next week, and if they're as good as the third quarter's results were, expect the stock price to rise.
