Strong investor enthusiasm led to a market rally in early 2023 as signs pointed to a strong American consumer, low unemployment, and tapering inflation. 

But mixed corporate performance and global geopolitical events have tempered that enthusiasm, and the S&P 500 is down 8% during the past three months. While the overall market loss reflects the movements of many stocks, some stocks have kept their gains. Nu Holdings (NU 1.66%) stock is already up more than 100% this year. Can it still go higher?

Why Nu stock is soaring this year

Investors have been piling into growth stocks this year after last year's flight to safety. Nu is a top growth stock, and it's been posting phenomenal performance despite economic instability.

Nu is the world's largest digital bank by capital raised. One of its original investors before it became a private company was Berkshire Hathaway, which still owns about 2% of shares.

It offers customers a low-hassle and low-fee banking experience, so it's not surprising that it already counts 49% of the population in its home country of Brazil as customers. That's been steadily increasing -- up by 1.5 million customers in the 2023 second quarter -- and Nu is now the fourth-largest financial institution in Brazil by customer count.

Nu added 4.6 million customers total in the quarter, and revenue increased 60% over last year to $1.9 billion. Activity rate, which measures how many customers are using services monthly, reached an all-time high of 82.2%. Nu also posted $225 million in net income after a $30 million loss last year. 

On the banking side of things, deposits were up 23% over last year to $18 billion, feeding into an expanded and record-setting net interest margin of 18.3%.

Tailwinds and opportunities

Nu's strategy is to attract customers with its better and cheaper experience and impress them enough so they buy more and higher-priced products and services. It has expanded its business beyond basic banking activities like bank accounts and loans to include credit cards, investing, and other services, all available on one financial app. As customers upgrade their accounts, Nu gets more revenue without customer acquisition costs -- and since it's all digital, with minimal increases in other costs. That has resulted in increased average revenue per active customer (ARPAC), while maintaining costs to serve. In the second quarter, ARPAC rose from $7.80 last year to $9.30 this year, while cost to serve remained at $0.80. This efficiency drives profitability, and the second quarter was the fourth consecutive quarter of net profit.

Beyond these growth drivers, Nu is expanding into new markets with even more opportunity. In Mexico, accounts increased 33% over last year, while they increased 133% in Colombia.

Higher interest rates are always a double-edged sword for financial institutions. They generate higher default rates, which lead to credit losses, but they also provide higher interest on loans and deposits. Nu is managing the balance in its favor with its higher net interest margin, while still attracting more members and product adoption.

A Buffett stock at a fair price

Buffett loves bank stocks. Most of his bank stocks are mature and established, flush with cash, and dividend payers. Nu just has the cash, but it's demonstrating that it can compete with the bigger and older players in its industry. 

While Nu stock seemed expensive for a while, it's down from the highs it hit after its initial public offering (IPO). As income surges, the valuation is also beginning to look very reasonable. At the current price, shares trade at only 22 times forward one-year earnings, which is a bargain for a high-growth stock.

There's always some risk with a young company getting its footing, but Nu is demonstrating sustained profitability trends without slowing down growth. Don't worry about gains you missed; you can still hop onto the ride for more in the future.