During the bear market of 2022, growth stocks in verticals such as technology and fintech were pummeled due to their lofty valuations and decelerating growth rates, in addition to a sluggish macroeconomic backdrop. However, the ongoing market rebound has driven the valuations of several companies in these sectors higher.
One such stock - that also happens to be part of Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) portfolio - is Brazilian fintech firm Nu Holdings (NU). Valued at a market cap of $56.2 billion, Nu Holdings stock has surged close to 45% year-to-date, easily outperforming the broader equities market. Let’s see if this breakout Buffett stock is still a buy right now.
An Overview of Nu Holdings Stock
Founded in 2013, Nu aims to disrupt legacy financial services. It is among the largest digital financial services platforms in Latin America, serving 94 million customers in Brazil, Mexico, and Colombia.
As one of the leading fintech companies in the world, Nu leverages proprietary products and innovative business practices to create path-breaking financial solutions for individuals and businesses - like its Nucripto platform.
Given its rising customer count, Nu is now the fifth-largest financial institution in Latin America. It is the primary banking relationship for 61% of monthly active customers who have been with the company for more than a year. In fact, it has also provided over 5 million customers with their first credit card or bank account.
Nu Holdings is Growing at a Fast Clip
Nu Holdings had close to five million new customers in the last quarter and more than 19 million customers in the last 12 months, making it one of the fastest-growing digital financial services platforms in the world.
In Q4 of 2023, Nu Holdings reported revenue of $2.4 billion, an increase of 57% year over year, while adjusted net income more than tripled to $395.8 million, up from $113.8 million in the year-ago period. While monthly average revenue per active customer expanded 23% to $10.6, its deposits surged by 38% to $23.7 billion.
Nu emphasized that its cost of funding remained stable at 80% of blended interbank rates, and the loan-to-deposit ratio stood at 34%. Its total receivables from the credit card lending business rose 49% to $18.2 billion, while its interest-earning portfolio almost doubled to $8.2 billion.
The fintech company ended 2023 with revenue of $8 billion, up from $4.8 billion in the year-ago period. Moreover, adjusted net income rose from $204 million in 2022 to $1.2 billion in 2023.
Nu’s rapid customer growth continues to outpace expectations. It ended 2023 with an activity rate of 83.1%, which is a quarterly record for the company. Moreover, the number of customers from Brazil rose 24% to 87.8 million, representing 53% of the country’s adult population.
What Is the Target Price for NU Stock?
Out of the 11 analysts covering NU stock, seven recommend “strong buy” and four recommend “hold.” The average target price for NU stock is $10.83, which is lower than the current trading price. However, Wall Street has a high target price of $16, which is 32% above the stock's Friday close.
Nu Holdings is a growth stock that commands a lofty multiple. Analysts expect sales to rise from $8 billion in 2023 to $11 billion in 2024 and $13.8 billion in 2025. Its adjusted earnings are forecast to rise from $0.25 per share in 2023 to $0.41 per share in 2024, and $0.66 per share in 2025.
That said, priced at 28.9x forward earnings, NU stock is not too expensive, given its adjusted earnings are forecast to grow over 60% annually in the next two years.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
