Is Nu Holdings Stock a Buy Now?

Investors who want exposure to a high-growth industry might want to take a closer look at the intersection of financial services and technology. A company you might not have heard of within this sector is Nu Holdings (NYSE: NU), which has found tremendous success in overseas markets.

This fintech stock trades 25% off its peak price from November, which might worry some people. But is it a smart buying opportunity right now? Here are three reasons I think it is.

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Growth

Nu should be on your radar because of the simple fact that its growth is so impressive. The company generated revenue of $2.9 billion in Q3, up 38% year over year. This number was more than 500% higher than the same period in 2021.

Nu's growth is definitely noteworthy. But it's important to highlight just how the business is gaining rapid adoption. This is a digital-only bank, offering various products like checking and savings accounts, credit cards, insurance, and brokerage services. By not operating physical branches, management is able to focus more on its technological foundation, which works to provide consumers with an exceptional user experience.

After adding 5.2 million net new customers in Q3, Nu has 109.7 million. The vast majority of these are in Brazil, the company's home market. Nu started targeting customers in Mexico and Colombia in recent years. Entering new countries in the future could definitely provide more growth opportunities.

Latin America offers lots of expansion potential. According to Latin America Reports, 70% of the population is unbanked or underbanked. As one of the largest digital banking platforms in the world, Nu is in an advantageous position to attract more customers in the region. This will lead to more revenue growth.

Profitability

With such a huge opportunity in front of it, it makes sense that Nu has historically prioritized growth above all else. However, this company is now much more financially sound than it was in 2022, when it posted a net loss of $9.1 million.

Nu has turned the corner. It finally reported positive net income according to generally accepted accounting principles (GAAP) in 2023. And during the third quarter last year, Nu's net income increased 83% year over year to $553 million, good for a hefty 18.8% margin. This is exactly what shareholders want to see because it indicates a sustainable business model.

Credit goes to strong unit economics. Nu generated $11 in average revenue per active customer in Q3. On a currency-neutral basis, that figure was up 25% year over year. That's definitely an encouraging trend.

On the other hand, the cost to serve the average customer during the third quarter was $0.80, down 4% from Q3 2023. There's clearly operating leverage Nu is taking advantage of. In fact, operating expenses as a percentage of revenue declined to 21% from 24% in the third quarter of 2023.

Nu's valuation

Nu's shares are well off their peak from a couple of months ago. This provides investors with a more compelling buying opportunity.

That's because the stock trades at forward price-to-earnings ratio of 20.3. This is not only significantly below the stock's historical average, but it also represents a 10% discount to the broader S&P 500.

This looks like a no-brainer buy decision for long-term investors. Wall Street believes Nu's revenue and earnings per share are going to rise at compound annual rates of 30% and 38%, respectively, between 2024 and 2026. Given the impressive trajectory the business is on, I believe these forecasts are reasonable.

It looks like investors who add Nu to their portfolios today are set up for strong returns in the years ahead.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.