Nu Holdings Ltd. (NU), a Brazilian fintech sensation, has been making waves in the financial world. In just under three years since its public debut, Nu has managed to attract over 100 million customers across Latin America. This remarkable achievement has captured the attention of investors, including the legendary Warren Buffett, who added Nu to his portfolio through Berkshire Hathaway Inc., holding over 107 million shares.
While Nu’s stock price has experienced a recent dip of about 8%, it remains up an impressive 86% over the past year. Analysts currently categorize the company as a Moderate Buy, with a consensus price target of $14.08, suggesting a potential 7.2% upside. However, this potential increase would only bring the stock back to its mid-September levels, prompting investors to question whether the time to invest has passed.
Nu Holdings boasts a strong track record of earnings performance. In the most recent quarter, the company achieved a net income of $487 million, exceeding analyst expectations with earnings per share (EPS) of 12 cents. Revenue has also surged, reaching $2.8 billion in the second quarter, a significant two-thirds increase from the same period in 2023. Nu’s impressive performance extends to its return on equity, currently annualized to 27%. Notably, its debt-to-equity ratio stands at a remarkably low 0.25, suggesting a reliance on equity financing for growth.
The key driver behind Nu’s phenomenal top- and bottom-line growth is its rapidly expanding customer base. In just two years, Nu has grown from approximately 65 million customers to well over 100 million. This expansion has been particularly impactful in Brazil, where about 34 million individuals, or one out of every five adults, lacked access to traditional banking. Nu’s user-friendly digital platform has made banking accessible to this previously underserved population.
Nu is a dominant player in Latin America’s burgeoning digital banking sector. Its customer growth in the last year has surpassed the combined growth of the five largest Brazilian incumbent banks. The company’s international expansion is also gaining momentum. As of mid-year, Nu had nearly 8 million customers in Mexico and 1.3 million in Colombia.
Beyond its growing customer base, Nu has successfully engaged its users. The company’s average customer has 4.1 active products simultaneously, contributing to a rise in monthly average revenue per active customer to $11.20.
Despite its impressive performance, Nu has room for further expansion in loans and credit cards, two of its least-utilized products. Less than 10% of Brazilian adults use Nu’s loan products, and only about 16% hold a Nu-branded credit card. This contrasts with the company’s traditional bank account services, which have captured a significant portion of the Brazilian market.
Given Nu’s rapid growth in the past year, it’s reasonable to wonder if the company’s most significant rally is already behind it. The recent dip in stock price could signal a larger trend to come. Furthermore, Nu’s forward P/E ratio of 32.0 is considered high. However, the company’s fundamental strengths, particularly its earnings growth and expanding customer base, show no signs of slowing down, particularly as it expands internationally.
Ultimately, it’s up to investors to determine whether they believe continued growth in these areas will translate into a sustained increase in share prices. Nu Holdings’ future remains bright, but whether its stock price will continue to climb is a question that only time can answer.
