Should You Buy Nu Holdings While It’s Under $15?

Not Holdings (NOT 4.29%) began trading on the public markets in December 2021. Since then, it has been anything but a smooth ride.

Shares are down 57% in 2022. But as of early 2023, that fintech stock skyrocketed 176% (as of August 6). There may be more advantages in the long run.

As of this writing, Nu stock is trading below $15, under pressure from a 17% drop since mid-July. Does this make it a hassle-free buying opportunity?

It is experiencing rapid growth

Nu Holdings is a digital banking powerhouse. Without the need for physical bank branches and using a mobile-based approach, the business offers customers various financial services products to meet their banking needs. It doesn’t have a huge presence in Brazil, but it also operates in Mexico and Colombia.

It’s amazing the success companies can achieve simply by using technology to create a superior user experience. Helping Nu’s situation is that Latin America’s population is severely unbanked or underbanked. Increasing internet and smartphone penetration also adds a supportive backdrop that can expand Nu’s total addressable market.

Investors are in love with Nu’s financial gains. In 2023, the company grew revenue by a staggering 68% year-over-year. That momentum continued this year, with Q1 2024 sales up 64%. This was driven by Nu adding 5.4 million net new customers to its platform in the three-month period. This rapid growth trend should continue with better cross-selling, adding more accounts and improved monetization.

Shifting the trend

It is common to see rapidly growing companies experience substantial net losses. After all, management teams adopt the philosophy of investing aggressively in product development, sales and marketing. The promise is that the positive gains will be realized at some point in the future.

To his credit, Nu is not against this trend. It is already on a financially sustainable path. net income grew 160% in Q1 to $379 million. This was a faster growth rate than the top line, indicating a scalable business model. And this was the seventh consecutive quarter of positive and growing profits.

The benefit of not having to operate brick and mortar branches and not having to deal with these overheads can result in profitable long-term growth for Nu. “While we are encouraged by the first quarter results, it is again important to underline our commitment to managing our business for long-term value creation,” Chief Financial Officer Guilherme Marques do Lago said on the first quarter 2024 earnings call.

According to Wall Street consensus analyst estimates, Nu is expected to grow earnings per share from $0.21 in 2023 to $0.77 in 2026, which translates to an outstanding CAGR of 53 %. It’s always smart to be skeptical of forecasts, but Nu’s trajectory is undeniably impressive, making it easier for investors to be bullish.

Riding on Buffett’s tail

It is not remarkably successful in Latin America, a region ripe for fintech disruption. Its revenue and revenue growth are superb. But there is another reason why you need to know how to like the business.

Berkshire Hathaway has been a shareholder since Nu’s initial public offering, with the conglomerate currently holding 2.2% of the outstanding shares. It is not clear whether Warren Buffett or someone else on his team found this deal. However, realizing that banking analyst expert The Oracle of Omaha is a shareholder should give potential investors confidence that Nu is a worthy investment candidate.

Market weakness sent Nu shares down 17 percent from their peak price set last month. The stock now trades at a compelling price-to-earnings ratio of 28.

With shares well below $15, they look like a smart buying opportunity for long-term investors.