Why Nu Holdings (NU) is a Compelling Buy Ahead of Its August 14 Earnings

As Nu Holdings (NU) prepares to report Q2 2025 results on August 14, investors face a critical moment to assess whether the fintech's valuation discounts its growth potential. With a forward P/E ratio of 23.08—down sharply from 40.82 in late 2022 but still above its industry average of 9.68—the stock offers a rare blend of high-growth momentum and a valuation that may understate its opportunities. This article argues that strategic market expansion, improving valuation multiples, and upcoming catalysts make NU a compelling buy ahead of earnings, even as risks like regulatory hurdles and leverage linger.

Valuation Dynamics: A Discounted Growth Story

The most compelling case for NU centers on its declining forward P/E ratio, which has fallen from 30.11 in trailing twelve months (TTM) to 23.08 as of June 2025. This contraction reflects investor demands for earnings growth to justify the premium, but it also creates a buying opportunity. A PEG ratio of 0.7—below the industry's 0.96—further underscores that NU's valuation may not yet fully account for its 25.34% projected revenue growth in 2025 or its $2 billion annual revenue target in Mexico by 2027.

While critics argue the stock is still overvalued relative to peers, the cash-rich balance sheet ($9.19 billion in reserves) and low customer acquisition costs ($1.50 per user in Brazil) suggest NU can scale profitably. The upcoming earnings report, which includes a $3.57 billion revenue forecast (25.34% YoY growth) and $0.12 EPS estimate, will test whether these growth assumptions hold. A beat here could push the stock toward its $18.90 high target, closing the gap between valuation and performance.

Strategic Market Expansion: Unlocking Latin America's Potential

Nu's $2.4 billion market cap is dwarfed by its ambitions. The company is leveraging its digital-first model to penetrate underbanked markets in Mexico and Colombia, where 23 million unbanked adults (Mexico) and 15 million unbanked users (Colombia) represent untapped demand. Mexico alone, where Nu secured a full-service banking license in early 2025, could contribute $2 billion in annual revenue by 2027, a 13% boost to its current trajectory.

The expansion strategy is bolstered by its Brazilian dominance—now at 105 million users, a 42% penetration rate—providing a template for replication. Services like NuPay and NuTravel also reduce reliance on traditional banking fees, a model that could gain traction as Latin American economies rebound.

Favorable Industry Tailwinds

The fintech sector is a Zacks Industry Rank top 7% globally, driven by digitization and regulatory tailwinds. In Mexico, for instance, central bank reforms to open banking APIs have reduced entry barriers, while Colombia's Ebanx partnership allows Nu to integrate its platform into a market with 70% unbanked adults. These structural shifts align with Nu's $350 million annual investment in tech infrastructure, positioning it to capture share in a $1.2 trillion regional fintech market.

Risks and Considerations

The bullish thesis isn't without hurdles. Nu's 6.5 debt-to-equity ratio raises liquidity concerns if growth stalls, while Mexico's banking license transition faces regulatory delays. A macroeconomic slowdown in Latin America—where GDP growth is projected at 2.1% in 2025—could also temper revenue.

The Zacks Rank #3 (Hold) reflects these risks, though upgrades from firms like JP Morgan and Barclays (“Overweight”) hint at a potential shift post-earnings. Analysts' average price target of $14.55 versus the current $13.23 suggests a 9% upside, but execution on Q2 results is critical to unlocking further gains.

The Earnings Catalyst: August 14 Will Test the Growth Narrative

The August 14 report is a make-or-break moment. A beat on the $0.12 EPS estimate or exceeding the $3.57 billion revenue forecast would validate Nu's expansion playbook and likely push the Zacks Rank to #2 (Buy). Even a modest miss could pressure the stock, given its high valuation. However, the 2.5% average post-earnings rally in past quarters suggests investors may reward execution over perfection.

Investment Thesis: Accumulate Ahead of Earnings

NU's discounted P/E, $2 billion+ Mexico opportunity, and cash-rich balance sheet make it a high-conviction buy ahead of August 14. While risks like leverage and regulatory hurdles exist, the stock's PEG ratio <1 and analyst optimism suggest the upside outweighs the downside. Investors should consider accumulating shares at current levels, with a $13–$14 entry point, and set a $16–$18 target if earnings exceed expectations.

In a market hungry for growth, Nu Holdings' blend of scalability and undervaluation makes it a rare gem. The August report is the next chapter—but the story's ending may already be written.

Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Always conduct your own research before making investment decisions.