Warren Buffett holds a lot of great stocks in his portfolio for Berkshire Hathaway.
He has some big winners in 2023, including a massive stake in Apple (up 41% year to date) and a small stake in Amazon (up 61%). But one company's stock has increased in value much faster than those tech giants. A small financial technology company. The shares have more than doubled so far this year.
It hasn't been an easy ride for Buffett. His company first acquired shares of the fast-growing fintech before its initial public offering (IPO). And while the shares quickly climbed in price after its market debut, they started falling along with the rest of the market in 2022. At one point, the stock was worth about a quarter of its all-time high. And while the share price has come roaring back in 2023, it still trades below the IPO price.
That means despite the stock's increase so far this year, there's still an opportunity to buy the shares. And it looks like a screaming buy.
Buffett's best performer
The stock in question is Nu Holdings (NU 1.66%).
Buffett put $500 million into the company before its IPO in 2021 and another $250 million when it made its public debut. That makes it a relatively small holding for Berkshire, which has a total portfolio value of about $343 billion. As such, it could very well be that one of Berkshire's other investment managers, Ted Weschler or Todd Combs, purchased the stock.
But the potential for Nu is huge.
The Brazilian company has quickly grown to be a leading financial institution in its home country. It focuses on bringing the unbanked into the financial ecosystem, providing digital bank accounts, credit cards, and other financial services (including cryptocurrency trading) to a vast underserved population. In fact, Nubank isn't just the leading digital bank in Brazil, it's raised more funding than any digital bank in the world. It's the fifth-largest financial institution in all of Latin America by total customers.
It now counts nearly 80 million Brazilians as customers, roughly half the adult population. And it's looking to repeat the process in Mexico and Colombia, where it launched in 2020.
Why Nu Holdings is a screaming buy
Nu Holdings is still in the early days of its business. Nearly all of its customers have been with the company for less than six years.
While the company produced an average revenue per active customer of $9.30 per month last quarter, customers who have been with Nubank longer produced around $24 per month. Newer customers are likely to get there even faster with the range of products Nubank offers.
Indeed, a big part of Nubank's strategy is to cross-sell customers. Not only does this give Nubank new streams of revenue, but it also increases engagement among customers with products they already use. The pipeline of new customers remains strong, abd Nubank is seeing rapid growth in its revenue per active customer. The metric increased 19% year over year in the second quarter.
And while Nubank is seeing its customers spend more on its services, its cost to serve customers hasn't budged. It still costs it an average of $0.80 per customer to serve, the same as this time last year. That operating leverage is finally showing up in its bottom line. Net income grew to $225 million in the second quarter, reversing a net loss of $30 million in the same period in 2022.
The profit potential is much higher as Nubank continues to build the customer base, cross-sell services, and increase revenue per active customer. Shares currently trade for around 26 times forward earnings estimates. Although it's not the cheapest stock Buffett owns, this is still a great price to pay for a company with the earnings growth potential of Nu Holdings.
