Nu Holdings (NU +2.56%) might carry a $53 billion market capitalization and be a holding in Berkshire Hathaway's portfolio, but most American investors have probably never heard of the business. The stock has done remarkably well, climbing 213% in the last two years.
However, since hitting their peak in mid-November, shares of Nu have fallen 30% (as of Jan. 9). The current dip can be enticing. Should you buy, sell, or hold this fintech stock?
Gaining broad adoption
It's worth highlighting what exactly this company does. Nu provides various financial services, like bank accounts, credit cards, and investment and insurance products. It launched in Brazil in 2013, and it also operates in Mexico and Colombia. The business doesn't have physical branches; instead, it gives customers a digital-only platform to use.
If you're looking at the company's numbers for the first time, the growth trajectory is probably what immediately draws your attention. Nu is expanding in remarkable fashion. Revenue in Q3 2024 jumped 38% year over year to over $2.9 billion. That figure is sixfold higher than in the same period of 2021.
Of course, the key ingredient of the growth story is bringing on new customers. Nu has 110 million customers today (up 23% compared to Q3 2023), of which 100 million are in Brazil. Nu mentions that 57% of the adult population in that country are its customers.
But Mexico has potential. "Mexico is an opportunity that net-net, I think, could be another Brazil for us," CEO David Velez said on the Q3 2024 earnings call. He called out higher per-capita income in Mexico compared to Brazil.
Nu only operates in three countries. However, the opportunity it has in Latin America is massive, as 70% of the population in this region remains unbanked or underbanked. As smartphone and internet penetration rise, coupled with rising incomes, there should be a greater need for Nu's financial services.
In December last year, Nu made a $150 million investment in Tyme Group, a digital banking start-up based in Singapore. It has 15 million customers and has a presence in Africa and Southeast Asia. This provides Nu with other growth markets in which it can expand.
NYSE: NU
Key Data Points
Surging profits
What you typically see with businesses growing this quickly is mounting losses. Leadership teams are usually investing aggressively to support product development and marketing efforts in order to expand. Shareholders might be fine with this, as there is a promise of achieving profits down the road at a greater scale.
Nu bucks this trend. Yes, its top line is rising at an incredible pace. But the bottom line is even more impressive. During the third quarter of last year, Nu raked in $553 million in net income, up 83% year over year. The net profit margin of 18.8% in Q3 continues expanding, indicating improving profitability.
Operating a fully digital banking platform is proving to have scale benefits. Nu doesn't need to build out expensive physical branches. What's more, the company is generating higher revenue per active customer, and at the same time, the cost to serve them is declining. This is a lucrative combination.
Nu's attractive valuation
Nu clearly has a bright future ahead if recent trends continue. Growth is superb, and earnings are increasing rapidly. You might assume that the valuation is out of reach. But given the stock's latest dip, investors are presented with a no-brainer opportunity, in my opinion.
Shares trade at a forward P/E ratio of 17.9. That's a massive 73% discount to their trailing-three-year average. And it's a sizable bargain when compared to the 26.4 forward P/E multiple of the tech-heavy Nasdaq-100. Investors who have a long-term time horizon should seriously consider buying Nu stock today.
