Two investors that could not be more opposite are Cathie Wood and Warren Buffett. Wood is the CEO and chief investment officer of Ark Invest, a firm that focuses on investments in emerging themes such as artificial intelligence (AI) or genomics. By contrast, Buffett has spent most of his tenure at Berkshire Hathaway owning blue chip stocks as opposed to higher-risk, volatile opportunities in growth sectors.
Yet despite their different philosophies, Wood and Buffett do have some overlap between their respective portfolios. One company that Ark and Berkshire both own is called Nu Holdings (NU 0.07%). Nu is a fintech player that specifically focuses on Latin and South America.
Let's dive into why Nu looks particularly attractive right now from a valuation perspective and make the case for why 2025 could be a breakout year for this under-the-radar commerce opportunity.
NYSE: NU
Key Data Points
Nu's operating performance is rock-solid
Nu is a digital financial services platform that provides its users with an inclusive suite of products ranging from checking and savings accounts, investing, loans, and more. For much of its history, Nu focused on markets such as Brazil, Colombia, and Mexico.
However, back in December, the company announced that it was participating in an investment round for digital banking platform Tyme Group -- which boasts 15 million customers across South Africa and the Philippines.
At the end of the third quarter (ended Sept. 30), Nu had 110 million members on its platform, which signaled 23% growth year over year. Moreover, the company's average revenue per user (ARPU) rose incrementally to $11 per member.
By making its customers more profitable over time, Nu has been able to widen its margins and expand profitability. During the third quarter, Nu's gross margin increased by 300 basis points and net income rose by 83% year over year to $553 million.
Image source: Getty Images.
The valuation relative to the company's growth is compelling
Per the chart below, Nu trades right in the middle among this peer set of other international fintech operations based on the price-to-sales (P/S) ratio.
NU PS Ratio data by YCharts
While this could imply that Nu is valued attractively relative to this cohort, it's the underlying trend in the company's P/S that sticks out to me. Nu's P/S has been steadily declining over the last few months. I think a major reason for this revolves around macroeconomic conditions throughout Latin America, particularly in Brazil.
Although such concerns are valid, I don't quite see these dynamics as a reason to sell the stock.
Nu reminds me of SoFi
One stock that has had a rough go for the last couple of years is SoFi. SoFi is a very similar business to Nu in that it offers many of the same basic financial services, all through the convenience of a mobile app.
Although SoFi has a number of different products, the company's largest source of revenue by a mile stems from lending. Given the U.S. experienced abnormally high levels of inflation over the last few years, the Federal Reserve resorted to some aggressive shifts in monetary policy -- raising borrowing costs 11 times between 2022 and 2023. These moves significantly impacted SoFi's lending operation, and for a prolonged period of time investors fled the stock.
However, the economic picture steadily started to improve, and in the final months of last year the Fed started to aggressively taper interest rates. Unsurprisingly, SoFi began witnessing a swift bounce-back in its lending business, and enthusiasm around the stock started to rise. Since the first rate cut back in mid-September, shares of SoFi have risen by more than 80%.
Concerns about inflation and its growth on SoFi's business show a parallel worry to that of Nu right now, given the company's exposure and vulnerability to a challenging economic environment in Brazil. But with that said, investors should zoom out and remember that economic conditions eventually begin to shift and improve in the long run.
To me, the concerns surrounding Nu's near-term growth are valid. But the long-term picture still looks incredibly robust -- underscored by the company's rising user base, cross-selling opportunities, rising profits, and economic expansion.
I see Nu following a similar trajectory to that of SoFi and think the stock is a bargain for investors with a long-term mindset.
