Unlocking the Potential of Digital Banking: 4 Compelling Reasons to Invest in Nu Holdings
A Dip in Share Price Presents an Opportunity
Nu Holdings, a digital banking business, recently released its third-quarter financial results, showcasing strength in key metrics. Despite this, the market reacted negatively, causing the share price to plummet 35% below its all-time peak. This dip presents an attractive opportunity for investors to buy into this fintech stock.
Warren Buffett’s Seal of Approval
Nu Holdings went public in December 2021, just as the stock market’s bull run was ending and the Federal Reserve began its aggressive rate-hiking cycle. However, this didn’t deter investors, including Berkshire Hathaway, led by legendary capital allocator Warren Buffett. Berkshire held onto its full position, riding Nu to impressive gains in 2023 and 2024. Although the company sold over 19% of its position in the third quarter, it still owns 1.8% of Nu’s outstanding shares. Buffett’s confidence in Nu should give retail investors confidence.
A Leader in Digital Banking
Nu is the world’s largest digital banking platform outside of Asia, offering bank accounts, credit cards, insurance and investment products, and loans to customers without the need for costly physical bank branches. The business has benefited from increasing smartphone and internet penetration in Brazil, Mexico, and Colombia, as well as rising incomes. This has driven spectacular growth, with revenue increasing 512% in three years to $2.9 billion in Q3.
A Profitable Business Model
Unlike many fast-growing companies, Nu is extremely profitable. Net income increased 83% year over year to $553.4 million in the third quarter, with a scalable business model that leverages overhead expenses as the sales base increases. The company’s unit economics are strong, with monthly average revenue per customer increasing 10% year over year and monthly average cost to serve users dropping 22%.
A Compelling Valuation
With Wall Street consensus analyst estimates calling for Nu’s earnings per share to rise at a compound annual rate of 38.6% between 2024 and 2026, the valuation becomes even more compelling. Shares trade at a forward price-to-earnings (P/E) ratio of 23.7, representing a 16% discount to the tech-heavy Nasdaq 100 Index and a slight premium to the overall S&P 500. Given Nu’s growth trajectory and expanding profitability, investors should take advantage of this opportunity to scoop up the stock.
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