Title: Why Nu Holdings is a Smart Pick for Long-Term Investors
If you haven't bagged one of the high-performing fintech stocks in the past year or two, there's a good chance that Nu Holdings (NU at 0.09%) hasn't crossed your path yet. The shares have nearly tripled since the beginning of last year and have attracted big-name investors such as legendary value-oriented Warren Buffett and aggressive growth fund manager Cathie Wood. Despite its impressive growth and impressive shareholder list, Nu Holdings remains off the radar for many investors.
Let's delve into reasons why you might want to consider Nu Holdings this holiday season:
1. The power of momentum
Nu Holdings has managed to claim 56% of Brazil's adult population as its credit card users. Remarkably, the company achieved this milestone even before its branchless bank launched in its home country of Brazil until 2014. Nu Holdings now boasts an active user base of over 109.7 million across three Latin American countries, showing a staggering 23% growth rate over the past year.
Nu Holdings isn't just winning a race to the top. The company has mastered the art of acquiring new customers at low cost and servicing its growing customer base affordably. Thanks to its digital backbone and scalable model, the company's average cost to service an account has plummeted to just $0.80 a month.
What's most intriguing is the company's consistent growth in engagement. As Nu rolls out new services, its users lean farther into the platform. The company's monthly activity rate has hit record highs with each quarter, demonstrating the stickiness of its customer base. Notably, revenue has risen 38% in US dollars and 58% in foreign currency.
The average revenue per active user may have dipped slightly, but it's still 25% higher than a year ago. With an average monthly cost of $0.80 to service each account, it's no surprise that Nu has remained profitable, even as it invests in its product lines and geographical expansion.
2. A correction creates an investment opportunity
After hitting an all-time high of $28.61 on Nov. 12, Nu shares are trading 27% lower as of December 6. Some justified reasons fuel the recent decline, including a slight dip in the average revenue per active user and the tightening of the net interest margin. Additionally, Berkshire Hathaway revealed it had sold 20% of its stake in Nu, but this development should not be interpreted as a negative sign. Berkshire Hathaway remains a substantial shareholder with an impressive stake in Nu.
Warren Buffett's frequent lightening of his holdings in prolific companies after periods of sharp appreciation should not come as a surprise. If Berkshire Hathaway still owned 20% fewer shares in a position that has nearly tripled in the past two years, it suggests that Berkshire Hathaway has a bigger stake in Nu Holdings than it did at the beginning of last year.
3. Value at the stock's current pricing
Despite a few areas of concern, Nu continues to deliver strong financial performance. Adjusted earnings surged 67% in its latest quarter, indicating an accelerating upward trend. Enthusiasm about the company's long-term growth prospects has spurred analysts to raise their profit targets.
Nu Holdings' stock has dropped 14% over the past 90 days, but earnings estimates keep rising. With a projected EPS of $0.44 this year and $0.63 in 2025, Nu Holdings is currently trading at just 19 times next year's adjusted net income projection. This might seem like a steep valuation for a stodgy bank, but it's a bargain when compared to the explosive growth potential of a dynamic fintech player.
If you're looking to diversify your portfolio, Nu Holdings might just be the new, exciting addition you're looking for.
Considering Nu Holdings' recent correction, now might be an opportune time for investing in this fintech company. After hitting an all-time high, Nu shares have seen a 27% decline as of December 6, potentially offering value at their current pricing.
Nu Holdings' impressive financial growth, such as a 58% growth rate in foreign currency over the past year and an active user base surpassing 109.7 million, highlights its potential for future investments in the realm of finance and technology.
