There's a company in Warren Buffett's portfolio that few investors have ever heard of. This is one of the fastest growing businesses that Buffett has ever put money into, and over the next few years, it's reasonable to expect it to double in size several times over.
Others may ignore the stock. But you shouldn't.
Few companies can grow this quickly for this long
Have you ever heard of Nu Holdings (NU 3.33%)? Few investors have. That's because the company operates exclusively in Latin America. And not all of Latin America, either. Nu first launched in Brazil around a decade ago, and has since entered only two other markets: Mexico and Colombia.
NYSE: NU
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What exactly is Nu doing in these end markets? It's disrupting the entire banking industry. "What started as a mission to eliminate bureaucratic inefficiencies and high fees has transformed into one of the largest companies by market cap in Latin America with around 100 million customers," observes Quartr, a data analytics company. "Nubank's journey from a disruptive start-up to a banking giant exemplifies the potential of fintech to transform industries."
A decade ago, the banking options in Latin America were dominated by stodgy brick-and-mortar incumbents, which used their market control to charge onerous fees for basic services. Nu took the market by storm, offering its services directly through a user's smartphone. It was easier, faster, and more affordable than any competitor. And Nu could innovate more quickly, too. When it launched its cryptocurrency trading platform, Nucripto, for example, it acquired more than 1 million users in its first month of operation.
Nu's business model has proven just about ideal. Over the past decade, the company has zoomed from essentially zero customers to more than 100 million. And yet the crazy growth rates continue. Nu added more than 20 million customers last year, with revenue rising 65% year over year. More than half of all Brazilian adults are now Nu customers, and more than 80% of users are considered "active" -- meaning they've used the service sometime over the last month. This activity rate has actually grown over the past year even as Nu has added millions of new customers -- a testament to the company maintaining a high-quality offering of in-demand services.
Image source: Nu Investor Presentation.
While Nu has targeted the most attractive countries first, there are more than 650 million people in Latin America, and the company's proven business model and growing reputation should help keep up growth rates for years to come. There's even plenty of growth left in its existing customer base. When customers first started signing up with Nu, they used, on average, just one of its products. Today, the average new customer starts using three of Nu's products from day one. For example, a new user might sign up for a bank account, but also a credit card and a crypto trading account. Selling more services across its current and future customer base adds another pillar of growth for Nu other than growing gross customer accounts.
But is the stock a buy? Absolutely.
Right now, Berkshire Hathaway -- Warren Buffett's holding company -- owns nearly $1.4 billion in Nu stock. It hasn't sold a single share since acquiring its stake.
On the surface, Nu stock isn't cheap. It trades at 9.2 times sales and 44 times earnings. Yet growth is so rapid that these figures will soon look fairly reasonable. On a forward basis -- that is, based on what analysts believe the company will earn next year -- shares trade at just 4.5 times sales and 33 times earnings. That's still pricey, but you can start to see how shares may look like a bargain just a few years from now.
Companies like Nu take patience. Growth rates are high, but the high entry price means investors need to have a multiyear investment horizon to experience most of the upside. Buffett and Berkshire are clearly willing to remain patient. Investors willing to take some extra risk for sizable long-term upside should consider following suit.
