Early investing usually involves some amount of risk. New companies don't have proven track records, and you need to take a chance on them to benefit later on.
Investing legend Warren Buffett isn't known for high-risk investing; he's known for value investing, or finding great stocks trading below their intrinsic value. But even Buffett and his team at Berkshire Hathaway identified Nu Holdings (NU 3.10%) as an investing opportunity back in 2021, when it was all of eight years old and before it became a public company.
Nu has been demonstrating impressive performance so far, reporting high growth as it becomes consistently profitable. The stock is up more than 170% during the past year alone; is there still time to buy?
Not the typical Buffett stock
Nu is an all-digital bank based in Brazil. It offers low-fee products on its financial services app, expanding from bank accounts to lending products, investing products, and more. It has also expanded from its core market of Brazil to Mexico and Colombia.
Revenue has been exploding; it increased 57% year over year (currency neutral) in the 2023 fourth quarter. There are a number of revenue drivers that are leading to the momentum. Its easy-to-use services are catching on all over and resonate with today's modern banking customer. What was originally aimed at a mass clientele is now becoming popular with more affluent customers, who have more money to spend and deposit. As consumers discover Nu, they engage with the platform and sign up for more products. And there's the typical growth that comes from expanding into new markets, and growth in Mexico and Colombia is outpacing growth in Brazil.
NYSE: NU
Key Data Points
Average revenue per active user is one of Nu's important top-line metrics, and it's been increasing year over year as well as consecutively. It came in at $10.60 in the 2023 fourth quarter, up from $8.20 the year before.
The credit business is also booming, and deposits increased 38% year over year in the fourth quarter. Total receivables increased 49%, and the interest-earning portfolio was up 91% to $8.2 billion. Nu's strong risk management is protecting it despite the high economic volatility that Brazil has experienced during the past few years, and it has plans to expand its credit products.
All of this growth is generating robust profitability. Gross profit increased 87% year over year in the fourth quarter, outpacing revenue, and gross margin widened to 47.5%. That trickled down to higher net income, which went from $58 million in the 2022 fourth quarter to $360 million in the 2023 fourth quarter.
Loads more opportunity
In some ways, Nu is just getting started. It still has robust growth opportunities in Brazil, where it gains millions of customers annually and is starting to penetrate the affluent market. It has 53% of the adult population in Brazil as account holders, and it adds customers in Brazil at a rate of 1.3 million monthly. It also continues to get more out of its customer relationships. For example, the percentage of account holders who use Nu as their primary bank was up 2 percentage points from the third quarter to 61%. It's still upselling and cross-selling this market and has years of growth ahead.
It has even higher growth prospects in the newer markets where it still accounts for a small fraction of the total population. It's still getting its feet wet there, securing a financial license in Colombia in December and offering a deposit account in Mexico in November. It's likely to eventually enter other Latin American markets that could generate growth for many years down the road. In other words, it still has a massive opportunity in new markets. Chief Executive Officer David Velez said the company's goal is to become "the largest consumer platform in Latin America."
At the current price, Nu trades at a forward price-to-earnings ratio of about 19, which is very reasonable for this top high-growth stock. It's not too late to buy Nu stock, and I highly recommend grabbing shares now.
