Investing in great companies doesn't need to cost a lot. Remember that the next time you visit a drive-thru for a quick snack. For just $10 each, you can buy shares in an emerging hypergrowth stock, like Nu Holdings (NU 2.14%).
Nu Holdings is an up-and-coming digital bank and fintech company in Latin America. A mixture of market opportunity and stellar execution make the stock a candidate for market-beating returns for the next decade and beyond.
Here is what makes it arguably the best $10 stock you can buy today.
Solving a tremendous problem in Latin America
You might take modern banking for granted if you live in America. Cash-only businesses are a rarity in the U.S. and more an inconvenience than a way of life. However, it's very different in Latin America. For example, only 55% of adults in Mexico have a banking account. That means nearly half are stuffing cash under their mattress, in their sock drawer, or, well, you get the idea.
Nu Holdings is a digital bank racing to provide modern financial products and services to consumers in Latin America. Currently, the company serves consumers in Brazil, Mexico, and Colombia. Nu's customer base has rapidly expanded, growing from just over 20 million in 2020 to 95 million as of January 2024.
Customers can bank online and don't need physical branches to conduct their business. Nu's services include digital accounts, payments, credit cards, business credit, investments, and insurance. The average customer uses four products, indicating they're building their finances on Nu.
NYSE: NU
Key Data Points
Latin America is home to more than 660 million people. While Nu Holdings is concentrated in three countries today, there is a clear path for long-term expansion. It could run into competition from other banks and fintech players like MercadoLibre, but it might be a case where everyone eats because the market demographic is so large. Nu's rapid customer growth shows no signs of running out of room for expansion.
Earnings growth is just getting warmed up
The primary business model of a bank is simple. Banks pay interest on customer deposits and collect interest on money loaned out. The net interest income is the spread between interest coming in and going out. Banks make money when interest received is greater than interest paid.
You can see below that Nu Holdings has seen its net interest income take off over the past few years, and the company's bottom-line earnings per share (EPS) have begun to follow. Last year was an inflection point for Nu; earnings turned significantly positive.
NU Net Interest Income (TTM) data by YCharts
A company turns profitable when revenue outruns expenses enough that the paradigm shifts, like the scales tipping the other way. A newly profitable company often grows earnings quickly until the business matures and profits growth slows.
That means Nu Holdings could be entering prime years for earnings growth. Analysts agree, expecting earnings per share as follows:
| Year | Earnings Per Share |
|---|---|
| 2023 (actual) | $0.24 |
| 2024 | $0.36 |
| 2025 | $0.54 |
| 2026 | $0.86 |
Data source: Seeking Alpha
Although nobody can say how accurate these estimates will be, it seems clear that Nu Holdings is moving in an excellent direction for long-term investors.
A fantastic buy-and-hold candidate
Banking services in emerging markets aren't going away. Latin American consumers build their economic foundation on the products and services companies like Nu Holdings provide. Management has stated that Brazil, its original market, heavily contributed to the bottom line in 2023. Management prioritizes growth over profit in its newer markets, Colombia and Mexico.
Replicating success in Brazil across Colombia, Mexico, and future geographies could position the company for years of solid earnings growth. Considering shares trade at just 28 times this year's earnings estimates, Nu Holdings has the runway to generate market-beating returns.
