Assessing Nu Holdings' Investment Strategy: Buy, Sell, or Maintain?
Nu Holdings, a fintech powerhouse with a $53 billion market cap, might not be familiar to many American investors. Yet, Berkshire Hathaway considers it a worthwhile addition to their portfolio, and the stock has performed exceptionally well, up 213% in the last two years. However, after hitting its peak in mid-November, Nu's shares have taken a 30% dive (as of Jan. 9). Is it time to buy, sell, or hold this Brazilian financial services powerhouse?
Embracing Digital Banking
Nu Holdings provides a range of financial services, including bank accounts, credit cards, and investment and insurance products. Established in 2013, the digital-only platform boasts over 110 million customers across Brazil, Mexico, and Colombia. The company's growth trajectory is impressive, with Q3 2024 revenue surpassing $2.9 billion, a sixfold increase compared to 2021.
As of Q3 2024, 57% of Brazil's adult population are Nu Holdings' customers. The company's expansion into Mexico is promising. According to CEO David Velez, the country's higher per-capita income could potentially replicate the success Nu has seen in Brazil.
Latin America provides a vast growth opportunity for Nu. With 70% of the region's population yet to be served by traditional banking systems, Nu Holdings is strategically positioned to meet this demand. A recent $150 million investment in Tyme Group, a digital banking startup in Singapore with 15 million customers in Africa and Southeast Asia, expands Nu's reach to new markets.
Profitability's Sweet Spot
Despite its rapid growth, Nu Holdings bucked the trend of running significant losses to support product development and marketing. Instead, it reported a net income of $553 million in Q3 2024, a 83% year-over-year increase. The company's net profit margin of 18.8% continues to expand, suggesting improved profitability.
The fully digital banking platform's scale brings cost benefits. Without the need for physical branches, Nu Holdings generates higher revenue per active customer while reducing serving costs.
An Opportunistic Valuation
Nu Holdings certainly seems to have a bright future. With impressive growth, expanding profits, and a digital-only platform chasing after a massive market opportunity, one might assume the valuation to be prohibitive. However, thanks to the recent dip, shares now trade at a modest forward P/E ratio of 17.9. This is 73% lower than its trailing-three-year average and even cheaper than the tech-heavy Nasdaq-100's 26.4 multiple.
Investors with a long-term outlook may want to take advantage of this opportunity to add Nu Holdings to their portfolios.
Given Nu Holdings' strong financial performance and promising growth opportunities, investing in the company's shares could be a wise decision for finance-savvy individuals. With its net income increasing by 83% in Q3 2024 and a current forward P/E ratio of 17.9, which is significantly lower than its average, this digital-only financial services provider might offer attractive returns in the future. Nevertheless, as with any investment, it's important to conduct thorough research and consider one's risk tolerance before making a financial commitment.
