Nu Holdings (NYSE:NU) is the parent company of Brazilian fintech giant Nubank. Like tech-driven financial service providers in North America, Europe and Asia, Nubank has managed to become a massive and extremely valuable company by introducing faster and easier financial service models in Latin America.
Despite being a growth-oriented tech stock, Nu Holdings may also have real potential as a value buy. Warren Buffett’s Berkshire Hathaway uncharacteristically bought a block of 107 million shares of NU around the time of the company’s IPO in 2021. Berkshire has held that position ever since, taking advantage of a gradual but meaningful increase in the stock’s price.
Today, Nu Holdings may still be undervalued. Having reached profitability, the company’s earnings appear to be growing rapidly. Moreover, Nu Holdings has a massive opportunity to become a go-to solution for banking and other financial products in Latin America. So, is this Brazilian company the best fintech stock to buy today?
Fintech Growth Opportunity in Latin America
To fully understand Nu’s long-term potential, it’s important to first get a sense of the opportunity that exists for fintech platforms in Latin America.
Over two-thirds of the region’s consumers are considered either unbanked or underbanked, a situation that makes it difficult for many to access modern financial tools.
The overwhelming majority of Latin Americans own smartphones, though, and so Nu Holdings can carve out a healthy market share by serving consumers via its mobile-friendly services.
Banking isn’t the only area in which Latin America lags behind in terms of financial services. Only about 30% of Latin Americans have access to borrow beyond their credit cards.
Both credit access and banking services are also distributed unevenly with wealthier residents in larger cities tending to have better gateways to financial tools, while poorer people living in rural areas are generally underserved financially.
Fintech firms act as equalizers in this dichotomy, allowing Latin Americans to more easily buy, save, invest and otherwise manage their finances.
100 Million Reasons To Buy Nu Stock
Nu Holdings has already done a remarkably good job of making a splash in this industry. The company serves over 100 million customers, including more than half of the adults in Brazil. Of these, about 78 million use a Nu bank account, making it a key go-to banking services provider.
Management has also reported strong revenues and earnings growth as a result of delivering cost-effective, simple banking to Latin American customers. In 2022, the company generated $4.79 billion in total revenues. The 12 months ending in Q2 saw that number skyrocket to $10.13 billion, more than double what the company was bringing in just two years ago.
Even more importantly, Nu Holdings is consistently profitable with rapidly rising earnings. 2023 was the company’s first full year of overall profitability with about $1.03 billion in net income.
As of the end of Q2, the trailing 12-month total had risen to $1.53 billion. Even more encouraging is the fact that Q2’s net income alone was $487 million, a gain of more than 116% compared to the year-ago quarter.
Nu has also managed to quickly raise its profit margins, an impressive feat for a company that has only recently become profitable. In Q2 of last year, the company delivered a net margin of just 1.2% yet just 12 months later that number had soared to 15.1%.
Looking to the future, Nu still appears to have a great deal of room to grow. Though it is already dominant in Brazil, the company so far operates only there, in Mexico and in Colombia. It has a long runway potentially ahead to break into new South American countries and prove to be a disruptive force there too.
How Are NU Shares Priced?
When viewed through the lens of standard financial metrics, Nu don’t seem overly expensive. After all, it trades at 35.8x forward earnings and 6.9x sales, which are high but not egregious.
Of greater concerns is the high multiples of 55.6x cash flow and 10.1x book value. These aren’t especially elevated for a growth stock but they certainly infer risk to the downside if bad news crops up or bumps in the road are hit.
An offesetting factor for Nu Holdings is its price-to-earnings-growth ratio that sits below 1 at just 0.7x, and so indicates that when earnings estimates are built in to projections, the company may indeed be trading below fair value.
How High Will NU Stock Go?
In the short run, analysts seem to believe that NU has limited room to run. With the stock currently trading just shy of $15 per share, the average target price based on analysts’ forecasts is right in line with the current share price. This leaves only about 4% upside over the coming year.
When viewed over a broader time horizon and factoring in the growth potential of Latin America’s economies, Nu will have a long growth runway ahead. The company is also still a relatively young and scaling fast, so creating the potential for the stock’s price to multiply over several years if it can hold its current upward trajectory.
Is Nu Stock a Good Investment Long Term?
Nu stock has all the hallmarks of being a good long-term hold because it offers a mobile-friendly service to a population that is saturated with smartphones and has the potential to expand in Latin America.
Given its strong performance, opportunity in a fast-growing market and possible undervaluation, Nu is likely to be a good buy and it’s got the added support of having the vote of confidence from Buffett’s Berkshire Hathaway.
Nu Holdings has the potential to grow and compound for many years to come, a fact that may very well make it a good buy-and-hold option. For those with long time horizons and a willingness to let their investments compound in spite of short-term volatility, Nu fits squarely in the crosshairs.
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