Warren Buffett isn't known for his growth investing. Most experts would classify him as a value investor. But as Buffett has reminded us in the past, value investors aren't just about buying cheap stocks. They're interested in buying companies at a discount to their future valuation, even if that means paying a premium today.
When it comes to valuation, the stock below isn't obviously cheap. But Buffett has seen through these numbers, amassing a $1.2 billion position in what most of us would classify as a hyper-growth company.
NYSE: NU
Key Data Points
An exciting reason Berkshire Hathaway is betting on this company
Apart from value versus growth investing, Buffett is also known for his long holding periods. Many companies in his portfolio have been staples for decades. While he has occasionally added to or trimmed these positions, these "forever" stocks will likely remain in his portfolio for years, if not decades, to come. Put simply: Buffett likes companies that he can buy and hold for long periods of time. In this regard, few businesses can match up to Nu Holdings (NU 0.58%).
Nu is what's considered a fintech stock. That means that it combines the fast growth rates of tech companies with the huge addressable markets in the financial sector. More specifically, Nu operates as a financial service provider across several countries in Latin America.
In the past, banks offered their services through physical branches, which were costly to maintain. Nu changed this by offering its services directly through smartphones. This eliminated most friction points involved in acquiring new customers, and it was able to push new services to customers at the click of a button. Over the past decade or so, the company has gone from essentially zero active customers to more than 100 million.
The best news is that the company's biggest days of growth are still ahead of it. More than 650 million people live in Latin America, and Nu's recipe for growth should have no problem being replicated across additional markets. Plus, it still has the opportunity to cross-sell more products to its existing customer base. When it launched its crypto trading platform, for instance, more than 1 million users signed up in the first month. Nu has a trusted brand and strong foothold in its key markets, and both expansion and a deeper product mix should keep revenue growth positive for many years to come.
But what about the valuation? Is the stock a buy right now?
NU Revenue (TTM) data by YCharts. PS = price-to-sales. YoY = year-over-year.
Nu stock is a buy if you're willing to be patient
Growth companies like Nu can experience extreme swings in valuation. Much of the priced-in growth remains far into the future. So when assumptions about that growth shift, it can have an outsized effect on today's share price. Last November, for example, shares were testing new highs at around $16 per share. After a sharp correction, however, the stock now trades for less than $12 per share -- the same price it traded for in 2021.
Looking ahead, analysts expect the company to grow sales around roughly 31% this year. That's below the company's long-term average, and it's not that enticing compared to the company's 7.2 times sales valuation. But if you're willing to remain patient like Buffett, there should be plenty of time to grow into that premium multiple. That's especially true given that the company recently turned profitable, with shares trading at just 31 times earnings -- roughly in line with the S&P 500's average valuation.
Note that Berkshire Hathaway trimmed its position last quarter by 19.3%. But that's the first sale recorded for Nu in its portfolio, and Berkshire is still holding on to around $1.2 billion in shares. These sales were also previous to the latest price correction. So if you're looking to piggyback on Buffett's portfolio, Nu remains a solid pick for growth investors with a multi-year time horizon.
