Nu's Digital Revolution: Growth, Value, and a Global Vision

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a day ago

Nu Holdings (NU, Financial) is considered one of the best growth stories coming from emerging markets. Thanks to its fast-growing revenues and earnings, a stable financial position, and a relatively low valuation, Nu has both size, speed, and room to grow. The company is gaining ground quickly, working flawlessly, and perhaps most importantly, doing it profitably. While the broader market was paying attention to a small EPS miss, Nu continued to deliver record revenues, increased customer involvement, and grew with unmatched efficiency in Latin America. When you consider Nu's banking move in Mexico, product diversification, and the growing interest from investors such as Cathie Wood and Baillie Gifford (Trades, Portfolio) (Trades, Portfolio) , it is easy to see that Nu Holdings is just getting started.
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For investors looking for a high-growth company that is also affordable and has huge potential in the long run, Nu Holdings should be on their watchlist.
Nu Holdings, known as Nubank, has transformed banking in Latin America by focusing on a digital-first, customer-obsessed approach. The company started in 2013 in Sao Paulo, Brazil, and now has grown into one of the world's largest digital banking platforms and caters to more than 114 million people across Brazil, Mexico, and Colombia.
Nubank is partnering with innovative companies to offer a wide range of services to its customers. Above all, Nu works hard to provide affordable and accessible financial services to many people who have not had access before.
Nu Holdings had a fantastic quarter; the market just didn't see it that way: Nu Holdings turned in a strong first quarter, demonstrating that, along with being a fast-growing digital bank, it is succeeding in growing profitably in Latin America. However, the market was not impressed. Shares fell 6.1% during after-hours trading as the company's GAAP earnings-per-share (EPS) was just $0.11 versus the $0.12 that analysts were expecting. The smaller-than-expected earnings, though flat since the last quarter and higher than a year back, triggered a sell-off that feels more like an automatic knee-jerk response than a reflection of the actual results.
Customer growth driving the flywheel: Nu's success is mainly built on the strong growth it sees in customers, and this trend continues to impress. In Q1, the company gained 4.3 million new customers and now serves 118.6 million in total, which is up by 19% from the previous year. Brazil still remains the main focus, as Nu now serves 59% of Brazilian adults. Mexico and Colombia are also growing fast, adding 11 million and almost 3 million customers, respectively. Also, 83% of users are active, which reveals that these are not just temporary members; they regularly use the app and contribute to growing the monetization strategy.
Financial muscle on full display: While EPS was a penny short, the rest of the company's financials are promising. Net income went up by 74% year-over-year (FX-neutral) to $557.2 million, and adjusted net income was $606.5 million. The company's revenues reached a new high of $3.2 billion, an increase of 40% FX-neutral. The company's efficiency ratio was 24.7%, which increased to 26.7% after taking out the one-time tax item, demonstrating that its operational efficiency wasn't dull either. Nu's scalability and disciplined cost control were reflected in a rise to $11.2 in ARPAC and the company's ability to limit the cost to serve per customer under $1. Although the risk-adjusted NIM went down to 8.2% due to credit costs and new operations, Brazil's main profitability did not weaken.
A deposit engine that keeps getting stronger: Nu's deposits increased by 48%, reaching $31.6 billion, giving the company strong and low-cost funds. With a ratio of 44% loans to deposits, the bank can still safely increase its credit. Because of more borrowing and better credit mix choices, interest-earning assets rose by 62% YOY.
The bottom line: Although Nu Holding's earnings fell short by a little, the stock still took a dip, but there is more to it. This quarter saw the company grow, improve its margins, and handle risks carefully. The fundamentals are not just there, but they are improving as well. All in all, the market's behavior seems to be a good buying opportunity rather than a matter of worry.
Apart from its strong growth and profit, Nu Holdings has a very secure balance sheet. Thanks to a cash-to-debt ratio of a whopping 39.47 and having almost $14 billion in cash, this company is swimming in cash. As a result, NU's cash balance is around 40 times greater than its debt. Having so much cash is impressive, given that the company is still rapidly growing. With this much money, Nu is able to introduce itself to new markets, try new ideas, or handle challenges in business without hesitation. For investors, it is rare to see a business that aims high and has the resources to do so.
The unique thing about Nubank is how it differs from ordinary banks, and that difference is intentional. The company does not have any physical branches. You can use the app for all your needs. Although this may seem basic today, it helps Nubank to massively improve margins by cutting infrastructure costs and soar ahead of traditional banks that pay for real estate.
Next, we have crypto. While banks have yet to discuss crypto in detail, Nu Holdings has already launched Nubank crypto, making it possible for people to trade Bitcoin and Ethereum directly within the app. It is another way the business remains up-to-date and connected to its tech-savvy users.
And let's not overlook the importance of the brand. Many people not only use Nubank, but also love it. It was placed at the top among all Brazilian companies, regardless of whether they were financial or not. It's not usual to see this level of trust and emotion in banking.
All of this happens due to the culture, which feels more like a tech startup than a bank. Quick to act, product-focused, and customer-obsessed. As the financial industry moves slowly, Nu Holding's quick actions are highly beneficial.
Nu Holdings is currently following a "Three Act Strategy" to make the largest and most loved retail bank in Latin America, offer services outside of finance, and build a global AI-based digital banking model. Under this strategy, the company has launched NuTravel, a service for planning trips within the app, and NuCel, its mobile virtual network operator (MVNO) service. They are intended to make Nu's offerings more varied and attract more customers. ?
Adding to that, Nu Mexico made history in April when it was officially granted permission to become a bank. Consequently, this is Mexico's first SOFIPO to receive approval from the regulators and open doors for the company to expand its product lineup. The accounts have things like payroll services, higher deposit limits, and unlimited deposit insurance. While the change is being made, customers will continue to enjoy the same smooth experience online. Nu is expanding in Mexico, where it has over 10 million users and $1.4 billion invested, to help more people access financial services, as just five banks serve most of the population here. This action could really improve the current situation.
In addition to thinking about how to expand globally, Nu Holdings is planning to relocate its legal domicile to the UK, which may also mean entering the United States as part of its strategy. The purpose of this move is to analyze different locations to find out if they are advantageous for the company, with a view to expanding internationally. ?
Growth is not slowing down for Nu Holdings. Since the company has seen its revenue rise from $2.97 billion in 2022 to almost $8.27 billion by 2024, its growth in fintech for Latin America seems to accelerate even more in the next few years. Revenue is expected to grow at a rapid pace and reach $14.7 billion in 2025, $18.43 billion in 2026, and an even bigger $26.32 billion by 2027. Nu's model clearly shows its strength and the significant potential in the markets where it already operates.
What's even more impressive is how quickly Nu is growing. The forward price-to-sales ratio is projected to fall from 4.30 in 2025 to just 2.40 by 2027. If this expectation is met, investors may see an increase in the amount of revenue they get for every dollar invested.
Source: Consensus Revenue Estimates (Seeking Alpha)
The earnings part is even better. Nu's EPS is expected to increase from $0.51 in 2025 to $0.99 by 2027, meaning it will almost double during those two years. EPS growth rates are accelerating year-over-year too, as analysts project a 24.91% rise in 2025, nearly 43% increase in 2026, and another 37% uptick in 2027. This positive trend is also seen in the company's expected forward PE ratio, which goes from 25.85 times in 2025 to 13.21 times by 2027. If things continue this way for Nu, the combination of strong earnings growth and valuation compression may lead to a powerful setup for long-term shareholders.
Source: Consensus EPS Estimates (Seeking Alpha)
The valuation of Nu at the moment is quite attractive. From the GF Value chart, $13.07 is the current stock price, while its intrinsic value is reported at $17.64. Therefore, it is said to be modestly undervalued, with an upside potential of roughly 35% if the company's progress continues.
According to the chart, there is a clear upward trend through 2027, and prices are expected to rise steadily in all situations, even when the scenarios are kept conservative. The colored bands tell us about different outcomes, and even the worst-case scenario, where the price drops 30%, appears to suggest upside from the current point.
Furthermore, its PEG ratio is 0.43 times, which is 38.4% lower than the sector median of 0.70, meaning the stock is growing quickly while being priced reasonably for its growth, which makes it even more attractive for long-term investors.
Even though the P/E ratio of 29 times is much higher than the average, I still believe that NU is undervalued due to its impressive current and expected growth in revenue and EPS.
NU's net income trailing twelve months (TTM) is already quite high, but owner earnings are where you see how much cash can be returned to its shareholders. The figure comes from taking our depreciation and amortization (D&A) total of $80 million and subtracting our estimated maintenance capital expenses. As most of Nu's spending is aimed at growing the business, we think around $69 million or 30% of its $231 million in capital expenditures is used for maintenance. As a result, we estimate that owner earnings are $2.16 billion.
Since capital expenditures are just 3% of total revenue, Nu uses a model that allows most profits to be turned into free cash. It reveals how an online bank can operate more quickly and easily than a traditional bank with physical branches.
Source: Author generated based on data and calculations
Compared to its peers, Truist Financial (TFC, Financial) and PNC Financial Services Group (PNC, Financial), Nu is definitely unique and stands out. While TFC shares are currently trading for $41.09, the GF Value puts them at $29.88, meaning the stock is actually significantly overvalued right now. Meanwhile, PNC shares are trading at $179.44, which is quite close to the GF Value of $167.06, making it a fairly valued stock. To conclude, PNC is safe and reasonably valued, and TFC is expensive, but Nu combines impressive growth with low costs, making it rare in today's market.
Source: Author generated based on historical data
Based on the rapid growth expected for Nu Holdings and its current valuation, there are many reasons to be optimistic about the stock. The stock has increased by 23.24% this year so far, and at its current price of $13, it appears to be undervalued.
Additionally, the PEG ratio shows that Nu is offering faster growth than most other companies at a lower cost. With all things considered, I believe a fair price target for Nu in a year is expected to be around $16 to $17, which represents a healthy upside while allowing for strong growth both this year and in the years to come if the company maintains its performance.
Adding to the bullish case, most analysts are greatly optimistic about Nu's future prospects. Based on recent data, 17 analysts' targets indicate the stock could climb by 6.10% to $13.91 in the next 12 months and reach a maximum anticipated target of $18.9.
All in all, Nu Holdings seems prepared for investors seeking future growth despite having a still-reasonable valuation.
Nu Holdings has succeeded in offering profitable growth with a low valuation. This is probably the reason why Cathie Wood has taken notice of the company. Cathie didn't stop with Q4; she actually bought more of Nu's stock and increased her positions across different ARK funds.
She's not alone either. Baillie Gifford (Trades, Portfolio) (Trades, Portfolio) , who is a long-term growth investor, also upped his stake and now holds over 17% more. In addition, Lee Ainslie (Trades, Portfolio) (Trades, Portfolio) nearly tripled his holdings by increasing them by almost 36%. Even after decreasing his holdings by 30%, Philippe Laffont (Trades, Portfolio) (Trades, Portfolio) holds over 55 million shares of Nu, which is the largest amount he holds in any company. Another way to put it is that it's a sign of being smart and strategic, not a sign of giving up.
It is important to note that Warren Buffett (Trades, Portfolio) (Trades, Portfolio) 's Berkshire Hathaway bought shares in Nu Holdings when it went public in 2021, at about $9 per share. But recently in Q1, Buffett sold his shares in the stock. The reason could be that Nu relies on digital banking in Latin America, where the markets are experiencing economic volatility. That said, it's not necessarily about Nu's performance. In fact, Nu is still experiencing strong gains in both customers and earnings, despite the challenges Latin America is facing.
While guru sells also exist, if a few of the best investors in the business are buying the same stock, it deserves attention. Growth, value, and confidence from major investors all fit together when it comes to Nu.
Even though Nu Holdings is doing well, there are still some issues investors should be aware of. To begin, Nu's strategy for growth counts on everything being executed at the highest level. As the company expands into new areas such as crypto, mobile, and travel, it could lead to a shortage of resources. It is important to diversify, but focusing on too many things at once can cause problems and increase the risk of failure.
Second, concerns about currency and inflation are a true challenge for Latin America. The main market for Nu, Brazil, is seeing an increase in inflation (around 5%) and a drop in the value of the real against the U.S. dollar. How the USD fluctuates against other currencies can reduce earnings, even if a company's business does well. We have seen a similar situation happen before, when Nu left Argentina because of high inflation and a volatile currency.
Third, Nu should pay close attention to regulatory hurdles, as it is now transitioning to full banking status in Mexico. Regulatory approval can take a long time, and the outcome is hardly ever certain.
Lastly, as Nu continues to accelerate its growth, being able to assess credit quality becomes very important. New market lending can cause more people to miss their loan payments, especially if the economy slows down.
Nu Holdings checks a lot of boxes for long-term investors. It is growing quickly, has solid profitability, is well-managed, and clearly has potential for further upside. Yes, the recent EPS miss caused some worry in the market, but it's just a temporary disturbance. On a closer look, fundamentals are quite interesting as Nu is scaling rapidly, innovating with purpose, and gaining the support of both customers and top investors. Its cash-rich balance sheet, rising profit margins, and big opportunities in Latin America (and beyond) give it an edge in fintech.
Like any other emerging market player, Nu faces risks, though it has shown it can handle them with agility. And with shares lower than their intrinsic value, investors have an opportunity to get in early before this company develops into a major financial institution of the digital age.
This article first appeared on GuruFocus.