Isn’t Stock a millionaire generator?

Not Holdings (NOT 4.01%) is a Brazil-based digital bank operating under the NuBank banner. It operates in three Latin American countries, so it might not be on your radar. But if you’re an investor, it should be. It is growing gradually and its stock has gained accordingly. Can it be part of a millionaire portfolio?

The bank’s customers waited

Banking is an old business, but digital banks have transformed the industry with user-friendly services that have attracted millions of customers. It is not at the forefront of the digital banking revolution in Latin America.

It serves its home country of Brazil, as well as Mexico and Colombia, and is growing at lightning speed. Revenue rose 65% year over year in the second quarter to $2.8 billion. To put that into context, that’s a slowdown from several quarters of triple-digit percentage growth before inflation, and it’s pretty impressive as a “slowdown” in the high-interest-rate environment. Net income doubled to over USD 487.3 million.

Nu’s fundamental growth strategy is that it can deliver a satisfying customer experience that outperforms traditional financial service providers, including low-fee products. Once it gets customers to try its platform and see for themselves, they sign up for more products, leading to increased revenue at a lower total cost of acquisition.

That’s what’s going on, and Nu reports a metric it calls average revenue per active customer (ARPAC) as one of its core growth metrics.

Image source: Nu Holdings.

Customers are also engaging with the platform as they sign up for more products, and the monthly activity rate has remained steady at 83%.

The future is wide open

That’s all in the past, but there’s still a huge opportunity. It didn’t add more than 5 million new members in Q2 to reach 104.5 million, and most of that still comes from Brazil, where it already has more than half of the adult population as customers. It’s just starting in Mexico and Colombia, where it only recently started operating, and who knows where it could go in the future. More people — 60% of monthly active users in Q2 — are making Nu their primary banking platform.

It is also making strong progress in its lending business. The total portfolio grew by 49% year-on-year in Q2 and, although delinquencies increased, it is in line with expectations in a period of pressure. Deposits increased by 64% year-on-year, while the cost of deposits remained below the mixed interbank rates of Nu’s countries of operation. Net interest income (NII) grew 77% year-on-year and management is confident that it can drive future NII growth with deliberate credit management.

This stock can hold it

They are not capturing market share and leveraging their digital systems to develop a better system and attract new business. Its stock reflects this journey and is up more than 100% in the past year.

There are risks with No stock. It is still young and launching new products. It is not yet profitable outside of Brazil. It also operates in countries with volatile economies. Its performance in these conditions inspires confidence, but the underlying conditions cannot be ignored.

Can beat millionaires alone? Although there have been unique stocks that have turned ordinary investors into millionaires, it is not the usual way to invest success. Most investors have the best chance of becoming millionaires in retirement by investing in a well-diversified pool of stocks early and consistently. Not a great development candidate for an individual portfolio.

It doesn’t appear to have exceptional potential, and if it can maintain its robust growth, which it looks like it can, it should be a winning stock for any investor.