Nu Holdings: The Fintech Stock That Could Go Parabolic in 2025
Saturday, Jan 11, 2025 6:55 pm ET
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As the investing world continues to evolve, two titans of the industry, Cathie Wood and Warren Buffett, have found common ground in their portfolios: Nu Holdings (NU -1.71%). This fintech player, focusing on Latin and South America, has caught the attention of both investors, and for good reason. With its rock-solid operating performance, attractive valuation, and potential for a breakout year in 2025, Nu Holdings could be the next big thing in the fintech space.
Nu Holdings' operating performance is nothing short of impressive. The company provides an inclusive suite of digital financial services, including checking and savings accounts, investing, loans, and more. With a user base of 110 million members as of the end of the third quarter (ended Sept. 30), Nu has seen a 23% year-over-year growth in users. Additionally, the company's average revenue per user (ARPU) has risen incrementally to $11 per member. By making its customers more profitable over time, Nu has been able to widen its margins and expand profitability. During the third quarter, Nu's gross margin increased by 300 basis points, and net income rose by 83% year over year to $553 million.
One of the most compelling aspects of Nu Holdings is its valuation relative to its growth potential. The company's price-to-sales (P/S) ratio places it in the middle of its peer set of international fintech operations. However, the underlying trend in Nu's P/S ratio has been steadily declining over the last few months. This decline can be attributed to macroeconomic concerns in Latin America, particularly in Brazil. While these concerns are valid, they should not be the sole reason for selling the stock. Nu reminds investors of SoFi, a similar business that offers financial services through a mobile app. SoFi's lending operation was significantly impacted by the Federal Reserve's aggressive shifts in monetary policy, which raised borrowing costs and led to a prolonged period of investor flight. However, as the economic picture improved and the Fed started to taper interest rates, SoFi witnessed a swift bounce-back in its lending business, and investor enthusiasm around the stock rose by more than 80%.
Nu Holdings' expansion into new markets, such as South Africa and the Philippines, further enhances its long-term growth prospects. By investing in digital banking platform Tyme Group, which boasts 15 million customers across these regions, Nu gains access to a larger customer base and diversifies its revenue streams. This strategic move allows Nu to tap into new markets and mitigate the risks associated with economic downturns or regulatory changes in any one market. As Nu continues to grow its user base and increase ARPU, it can expect to see sustained revenue and profit growth.
In conclusion, Nu Holdings' impressive operating performance, attractive valuation, and potential for a breakout year in 2025 make it an attractive investment opportunity. With its rising user base, cross-selling opportunities, improving profitability, and economic expansion, Nu Holdings is well-positioned to continue its growth trajectory. As macroeconomic conditions in Latin America improve, Nu Holdings could experience a parabolic rise in its stock price, following a similar trajectory to that of SoFi. Investors looking for a long-term growth opportunity in the fintech space should consider Nu Holdings as a strong contender.