- The Brazilian fintech marvel, Nu Holdings, has soared by an astounding 86% in the past year. Fueled by the endorsement of legendary investor Warren Buffett, it has quickly become a favorite among U.S. investors.
- With rapid earnings and customer growth propelling its ascent, Nu Holdings appears set for continued expansion as it extends its international footprint.
- However, investors are understandably cautious as they ponder whether the stock’s meteoric rise has peaked.
Brazilian fintech Nu Holdings (NYSE:) burst onto the scene less than three years ago and has already amassed an impressive 100 million customers across Latin America. Operating through its innovative NuBank platform, which offers digital banking solutions sans physical branches, the company’s popularity skyrocketed after Warren Buffett’s Berkshire Hathaway (NYSE:) amassed over 107 million shares of NU stock by the close of the second quarter.
While Nu shares dipped by around 8% last week, they maintain an astonishing 86% surge over the last year. Analysts currently label the company as a Moderate Buy with a consensus price target of $14.08, reflecting a 7.2% upside potential. Yet, this modest increase would only bring the stock back to its mid-September levels, leaving investors to ponder if the ship on Nu Holdings has sailed.
Earnings Soar to New Heights
Nu has consistently delivered strong earnings results over the past six quarters, including a recent net income of $487 million, equivalent to 12 cents per share, surpassing analysts’ forecasts of 10 cents. Revenue has experienced a remarkable surge, hitting $2.8 billion in the second quarter, a 67% increase compared to the same period in 2023.
The company’s impressive annualized return on equity stands at 27%, alongside a notably low debt-to-equity ratio of 0.25, uncommon for a financial institution and hinting that Nu has judiciously used equity to propel its growth.
There are no signs of Nu’s earnings momentum losing steam, with analysts projecting a more than 51% surge in earnings for the current year.
Nu Holdings’ Soaring Customer Base
What drives Nu’s exponential growth in both revenue and profits? A pivotal factor is the explosive expansion of its customer base, both within Brazil and beyond. Within just two years, the company has grown from 65 million to over 100 million customers. Approximately 34 million Brazilians—nearly one-fifth of the adult population—traditionally excluded from traditional banking, now benefit from Nu’s accessible digital platform.
As a digital banking trailblazer in Latin America, Nu’s customer growth surpasses the collective growth of the five largest incumbent banks in Brazil. Furthermore, its international outreach is picking up pace, boasting nearly 8 million customers in Mexico and 1.3 million in Colombia by mid-year.
Engaged Customers Set the Stage for Further Growth
Besides expanding its customer base exponentially, Nu has effectively engaged these customers, each holding an average of 4.1 active products, fueling a rise in monthly average revenue per active customer to $11.20.
While excelling in customer engagement, Nu still has untapped potential in its loan and credit card offerings. Less than one in ten Brazilian adults utilize Nu’s loan products, and just one in six hold a Nu-branded credit card, compared to approximately a third of Brazilians holding traditional bank accounts.
Nu Stock: A Balancing Act Between Evaluation and Growth
Despite its staggering growth over the past year, Nu Holdings may have peaked in its upwards trajectory. The recent stock price dip might foretell a larger trend, and with a high forward P/E ratio of 32.0, some view the stock as overvalued.
Yet, anchored in its robust fundamentals—steadfast earnings growth and a burgeoning customer base, especially with expanding international operations—Nu Holdings shows no signs of slowing down. The onus now falls on investors to decide if the company’s relentless growth potential could translate into sustained stock price appreciation in the future.