Nu Holdings (NU +0.47%) might be a company that's unfamiliar here in the U.S., but American investors might want to become familiar with the Brazil-based digital banking powerhouse. Nu sports a market capitalization of $71 billion, and in the past 24 months, its shares have jumped by nearly 200%.
There still might be more to get excited about the bank. After the market close on Aug. 27, this fintech stock trades at $14.64. Should you buy shares while they're below $15?
Image source: Getty Images.
Still a big opportunity ahead
Since its founding in 2013, Nu has quickly become one of the largest digital banks on the planet. By leaning on technology to provide a great user experience and serving up various financial services, it has found rapid adoption. Revenue climbed 40% year over year in the second quarter (ended June 30). Nu added 4.1 million net new customers in the last three months, bringing its total to 122.7 million.
The growth thus far has been nothing short of excellent. However, investors would have a flawed view if they believed the gains were over. That couldn't be further from the truth. In fact, Nu appears to have a long runway for expansion ahead. Nu is established in its home country of Brazil, and it's making tremendous progress in Mexico and Colombia. In the future, the leadership team could enter new markets.
Wall Street consensus analyst estimates call for revenue to rise at a compound annual rate of 30.7% between 2024 and 2027. This is a stellar outlook that should add some bullishness to the story.
Nu operates in a developing region of the world. To be clear, this comes with risks, like geopolitical turmoil or macroeconomic volatility. But as internet and smartphone penetration increase, it creates a more favorable backdrop for the business to keep thriving.
Add in the fact that Latin America has a huge unbanked and underbanked population. As the economy grows here, incomes rise, and the need for more people to have financial services emerges, Nu is poised to be a much larger company five or 10 years down the road.
At a bigger scale, Nu's competitive position will be extremely difficult to disrupt. Established banks, such as JPMorgan Chase and Bank of America, have developed wide economic moats that stem from cost advantages and switching costs. Nu could be well on its way to building these compelling traits.
NYSE: NU
Key Data Points
Nu's impressive profitability
As mentioned, successful banks might benefit from a cost advantage. As they scale up, add new customers, and grow revenue, they are better able to spread out their expenses. Nu appears to be following this path. A look at its bottom line proves this.
Nu generated net income of $637 million in the second quarter. That was up 42% year over year and a major improvement from the $29.9 million net loss in the same period three years ago in 2022. Profits have increased at a faster clip than sales have, indicating a very lucrative business model that is able to leverage operational expenses.
One clear reason that the bottom line is exploding is because of Nu's exceptional unit economics, which is basically the profit and loss of serving a single customer. During Q2, Nu reported average revenue per active customer of $12.20 on a monthly basis. This was well ahead of the cost to serve each customer of $0.80.
Nu shares have been climbing quickly, almost tripling in three years. But given the company's tremendous growth potential, coupled with its already high profitability, I believe investors should take a closer look. The stock currently trades at an attractive forward price-to-earnings ratio of 23.4. With shares just below $15, Nu looks like a no-brainer buying opportunity.
