During the 2022 bear market, growth stocks, particularly in sectors like technology and fintech, faced significant declines due to lofty valuations and slowing growth rates amid a challenging macroeconomic environment. However, the ongoing market recovery has propelled the valuations of numerous companies in these sectors, including Nu Holdings (NYSE:NU), a Brazilian fintech firm that happens to be part of Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) portfolio. With a market capitalization of $56.2 billion, NU stock has surged nearly 45% year-to-date, outpacing broader equity markets. Let’s assess whether this breakout Buffett stock remains a viable investment option.
Overview of Nu Holdings Stock
Established in 2013, Nu aims to revolutionize traditional financial services and stands as one of Latin America’s largest digital financial services platforms, serving 94 million customers across Brazil, Mexico, and Colombia. Leveraging proprietary products and innovative business strategies, Nu develops groundbreaking financial solutions for individuals and businesses, such as its Nucripto platform. With its expanding customer base, Nu has emerged as the fifth-largest financial institution in Latin America, serving as the primary banking relationship for 61% of monthly active customers who have been with the company for over a year. Notably, Nu has issued over 5 million customers with their first credit card or bank account.
Rapid Growth Trajectory
Nu Holdings has experienced rapid growth, adding close to five million new customers in the last quarter and over 19 million customers in the past 12 months, positioning itself as one of the fastest-growing digital financial services platforms globally. In Q4 of 2023, Nu reported a revenue of $2.4 billion, marking a 57% year-over-year increase, while adjusted net income more than tripled to $395.8 million. Moreover, monthly average revenue per active customer expanded by 23% to $10.6, and deposits surged by 38% to $23.7 billion. Nu emphasized stable funding costs at 80% of blended interbank rates and a loan-to-deposit ratio of 34%. Total receivables from the credit card lending business rose by 49% to $18.2 billion, while the interest-earning portfolio nearly doubled to $8.2 billion. In 2023, Nu achieved a revenue of $8 billion, up from $4.8 billion in the previous year, with adjusted net income increasing from $204 million to $1.2 billion.
Target Price and Growth Outlook
Of the 11 analysts covering NU stock, seven recommend a “strong buy,” while four suggest a “hold.” The average target price stands at $10.83, lower than the current trading price, but with a high target price of $16, representing a 32% increase from Friday’s close. Analysts anticipate NU’s sales to rise from $8 billion in 2023 to $11 billion in 2024 and $13.8 billion in 2025, with adjusted earnings projected to increase from $0.25 per share in 2023 to $0.41 per share in 2024 and $0.66 per share in 2025. Priced at 28.9x forward earnings, NU stock appears reasonably valued, considering its forecasted earnings growth of over 60% annually in the next two years.
In conclusion, Nu Holdings presents a compelling investment opportunity as a growth stock with significant potential for further expansion, supported by its robust financial performance and promising growth prospects.
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