If you're looking for a high-growth stock in an exploding industry operating in an underpenetrated region, look no further than the Brazilian fintech Nu Holdings (NU 1.21%). This lesser-known Warren Buffett holding is demonstrating incredible performance, and there are many reasons to be confident about its continued prospects. Here are three reasons to buy:
1. Nu has barely penetrated some of its markets
Nu is still a fairly young company, with $6.5 billion in trailing-12-month revenue, and is making a big splash in the three countries it operates in right now. The business is headquartered in Brazil, where it already counts 54% of the adult population as members.
And Nu is still adding millions of customers each quarter and ramping up new launches for its credit products, targeting new demographics, including the affluent.
The company is just getting started in Mexico and Colombia, where it's growing even faster. Nearly 1.5 million customers were added in Mexico in the first quarter for a total of 6.6 million, and there are 900,000 members in Colombia, where it only recently rolled out its savings account. The company ended the first quarter with 99.4 million total customers, 20 million more than last year.
Nu generates a lot of growth by cross-selling customers new products, so there's plenty of room to grow even within its current membership as customers adopt more products and management rolls out new ones.
2. It's highly profitable at scale
Nu has reported six consecutive quarters of net profits, with increases each period, giving it sustained profitability. Net income under generally accepted accounting principles (GAAP) was a record $379 million in the first quarter, up from $142 million last year.
As more customers engage at a higher rate with more products, revenue is increasing without an increase in marketing and customer acquisition costs. For example, average revenue per user increased from $8.60 to $11.40 in the first quarter while the cost to serve a customer was $0.90, up from $0.80 last year but constant for the past three quarters.
Nu is also leveraging its highly efficient credit portfolio to generate higher profits. Total receivables from credit cards and personal loans were up 52% year over year, and the interest-earning portfolio increased 86% year over year, driving a 93% increase in net interest income and expanding net interest margin.
Image source: Nu Holdings.
This kind of profitability is coming even as Mexico and Colombia remain unprofitable while management invests in those regions. The profitability from the core market of Brazil is more than making up for that, allowing it to test new markets without hesitation.
3. The stock is a bargain
Warren Buffett looks for undervalued stocks, and if he doesn't see a bargain, he doesn't buy. Nu trades at a forward one-year price-to-earnings ratio of only 18, a bargain for a profitable, high-growth stock. Consider that it's about half the multiple of similar fintech upstart SoFi Technologies, and not that much higher than JPMorgan Chase, even though it's growing much faster than both.
NU revenue (TTM) data by YCharts; TTM = trailing 12 months.
This is an excellent time to grab shares of this top growth stock with the prospect of its climbing higher.
