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With a market capitalization of $49.4 billion, Nubank parent company, Nu Holdings (NU) has emerged as a disruptive force in Latin American banking. It operates a digital banking platform, providing a wide range of financial products such as no-fee credit cards, personal loans, and savings accounts.
Founded in 2013, Nu Holdings is a relative newcomer amongst bank stocks, but it has capitalized on the rapidly expanding digital finance market. Because of its growth potential and disruptive nature, the stock has earned a spot in famous investor Warren Buffett’s Berkshire Hathaway (BRK.B) portfolio. Buffett’s investment strategy focuses on buying undervalued companies with strong fundamentals. NU has a 0.3% weighting in the portfolio.
NU stock has gained nearly 25% in the year to date, roughly in line with the S&P 500 Index ($SPX). And importantly, Wall Street expects the stock to rise by nearly 58% over the next year, based on an average price target of $16.38. A high estimate of $19 implies 83.2% upside potential. I believe that given the rate at which the company is expanding its customer base, it is an excellent long-term buy, especially after its recent selloff.
Nu Holdings Is Rapidly Growing
Nu Holdings has amassed a massive market share, particularly in Brazil, its home market. The company has also expanded into Mexico and Colombia, two other high-potential markets, and has roughly 9 million customers in Mexico as of the third quarter of 2024. In Colombia, the total number of customers exceeded 2 million in the quarter, owing to positive momentum from the January launch of the Cuenta Nu product, a digital savings account with no hidden fees or commissions.
Its flagship brand and digital payment platform, Nubank, has rapidly expanded its customer base, adding 5.2 million customers in the third quarter. The company now has 109.7 million global customers, up from 89.1 million in the same quarter last year.
Monthly average revenue per active customer increased 25%, leading to total revenue growth of 56% year-over-year to $2.9 billion. This expansion was fueled by increased customer acquisition, increased use of its financial products, cross-selling across its products and services, and new product launches.
Furthermore, net income rose 82.6% to $553.4 million in the quarter. Since the third quarter of 2023, the company has maintained a consistent gross margin between 40% and 50%. Gross margin stood at 46% in the quarter.
On the balance sheet, Nu Holdings had cash and cash equivalents of $7.6 billion, with a low debt-to-equity ratio of 0.2x.
The company’s ability to scale quickly while maintaining strong financials has been a key factor in analysts’ confidence. Analysts expect that revenue and earnings will grow by 47.3% and 92.5%, respectively, in 2024. Furthermore, revenue and earnings are projected to increase by 33.7% and 39.6%, respectively, in 2025. Trading at 18 times forward 2025 earnings, NU stock looks like a reasonable buy now.
What Does Wall Street Say About NU Stock?
Wall Street analysts are moderately bullish on Nu Holdings, citing its dominant market position, strong growth metrics, and improving profitability. Many analysts have either upgraded or maintained their “Buy” rating, highlighting the company’s ability to achieve long-term earnings growth and expand into Latin America’s underbanked population.
Recently, Morgan Stanley analyst Jorge Kuri held maintained a “Buy” rating with a target price of $18. Kuri is impressed with the company’s “strategic positioning and resilience amid a challenging macroeconomic environment.”
Jefferies maintained the same stance with an $18.90 price target. Following its outstanding Q3 results, Susquehanna and Barclays also maintained their “Buy” ratings for the stock.
Out of the 13 analysts covering NU stock, seven rate the stock a “Strong Buy,” while five recommend a “hold” and one suggests a “Strong Sell.” Its average target price of $16.38 suggests the stock can rally 58% from current levels. The high price estimate for NU of $19 suggests upside potential of 83.2% over the next 12 months.
The company’s innovative approach, robust growth, and strong market position make it a standout player in the industry. For those seeking exposure to the fast-growing fintech sector in emerging markets, NU stock remains a compelling long-term opportunity.
However, fintech stocks can be risky. As a result, NU would be best for investors with a high risk tolerance and a diverse portfolio of other stable stocks.
