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Nu Holdings (NU) Surges 53% YTD: Should You Ride the Wave?
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Nu Holdings Ltd. (NU - Free Report) has had an impressive run this year. The stock has surged 52.7%, significantly outperforming the 22.6% rally of its industry.
NU’s upward trajectory can be attributed to the company's robust business model, characterized by a strong brand, efficient cost structure and improving monetization strategies.
Image Source: Zacks Investment Research
As of the last trading session, NU’s stock closed at $12.87, close to its 52-week high of $13.64. Additionally, it is trading above its 50-day moving average, suggesting a bullish sentiment among investors.
Compared with NU, peer performance is notably poorer. Banco Santander (Brasil) S.A. (BSBR - Free Report) has plummeted 22%, and SoFi Technologies (SOFI - Free Report) has dipped 25.3% over the same period.
Considering the persistent strength of NU shares, investors may be wondering if there is still time to invest in the stock. Let’s delve deeper into this question.
Strong Foothold in Latin America
NU has emerged as a dynamic and aggressive player in Brazil's traditionally sluggish banking sector. The company has managed to differentiate itself from the entrenched oligopoly of conventional banks by adopting a distinctive cost structure. Unlike the legacy banks that have dominated the market for years, NU leverages a digital-first approach. This strategy significantly reduces the cost of serving customers, enabling NU to offer lower prices and fees compared to its competitors.
The combination of reduced fees and a superior digital user experience has resulted in exceptional customer satisfaction, bolstering the company's brand reputation among Brazilian consumers. This positive brand image, in turn, has fueled word-of-mouth referrals, which have become a significant driver of customer acquisition for NU. Consequently, a majority of Brazilian adults with bank accounts now regard NU as their primary banking institution.
Strong Business Model
The company's robust business model, characterized by a strong brand, efficient cost structure, and improving monetization strategies, has demonstrated considerable success. NU is now seeking to replicate this success in other Latin American markets, including Mexico and Colombia.
The company's financial performance in the first quarter of 2024 underscores its growth trajectory, with revenues soaring more than 69% year over year and adjusted net income surging an impressive 143% compared to the previous year. It increased its customer base by 5.5 million in the quarter, reaching a total of 99.3 million globally. The increasing trend toward digitization is expected to further propel NU's growth.
Despite facing challenges such as foreign exchange risks and intense competition, NU's future growth prospects remain promising. We believe key future growth catalysts are geographic expansion into countries like Argentina, Peru, Chile and Uruguay, as well as the enhancement of services in existing markets such as Mexico and Colombia.
Healthy Returns on Capital
Return on equity (ROE), an indicator of profitability, shows how efficiently a company uses its shareholders' investments to generate earnings. NU’s trailing 12-month ROE is 22.9% compared with the industry’s 6.1%. NU has demonstrated effective investment in profitable areas, as reflected in its return on invested capital (ROIC). The company’s trailing 12-month ROIC is 9.8%, ahead of the industry average of 4.1%.
Strong Top and Bottom-Line Prospects
The Zacks Consensus Estimate for NU’s 2024 earnings is pegged at 41 cents, indicating 70.8% growth from the year-ago level. Earnings in 2025 are expected to increase 53.1% from the prior-year actuals. The company’s sales are expected to increase 52.6% and 32.2% year over year, respectively, in 2024 and 2025.
Stock Looks Cheap Despite Massive Rally
Despite the impressive rally this year, NU’s stock remains relatively less expensive, indicating potential for further appreciation. If we look at the forward 12-month Price/Earnings ratio, NU shares currently trade at 24.19X forward earnings, significantly lower than the industry’s 38.19X.
Image Source: Zacks Investment Research
Based on EV-to-EBITDA, NU is currently trading at 23.56X, close to the industry’s 58.98X.
Image Source: Zacks Investment Research
NU is a Buy
NU presents a compelling investment opportunity. Despite significant price increases, the stock remains relatively less expensive, suggesting room for further growth. The company's effective business model, strong top and bottom-line growth prospects, and expanding customer base, all contribute to its potential for continued success.
NU’s robust financial health and positive growth outlook make it a must-buy for investors seeking exposure to the fintech sector. The company's strategic initiatives and strong market position are likely to drive further appreciation in the stock price, making it an attractive investment opportunity.
Image: Bigstock
Nu Holdings (NU) Surges 53% YTD: Should You Ride the Wave?
Nu Holdings Ltd. (NU - Free Report) has had an impressive run this year. The stock has surged 52.7%, significantly outperforming the 22.6% rally of its industry.
NU’s upward trajectory can be attributed to the company's robust business model, characterized by a strong brand, efficient cost structure and improving monetization strategies.
As of the last trading session, NU’s stock closed at $12.87, close to its 52-week high of $13.64. Additionally, it is trading above its 50-day moving average, suggesting a bullish sentiment among investors.
Compared with NU, peer performance is notably poorer. Banco Santander (Brasil) S.A. (BSBR - Free Report) has plummeted 22%, and SoFi Technologies (SOFI - Free Report) has dipped 25.3% over the same period.
Considering the persistent strength of NU shares, investors may be wondering if there is still time to invest in the stock. Let’s delve deeper into this question.
Strong Foothold in Latin America
NU has emerged as a dynamic and aggressive player in Brazil's traditionally sluggish banking sector. The company has managed to differentiate itself from the entrenched oligopoly of conventional banks by adopting a distinctive cost structure. Unlike the legacy banks that have dominated the market for years, NU leverages a digital-first approach. This strategy significantly reduces the cost of serving customers, enabling NU to offer lower prices and fees compared to its competitors.
The combination of reduced fees and a superior digital user experience has resulted in exceptional customer satisfaction, bolstering the company's brand reputation among Brazilian consumers. This positive brand image, in turn, has fueled word-of-mouth referrals, which have become a significant driver of customer acquisition for NU. Consequently, a majority of Brazilian adults with bank accounts now regard NU as their primary banking institution.
Strong Business Model
The company's robust business model, characterized by a strong brand, efficient cost structure, and improving monetization strategies, has demonstrated considerable success. NU is now seeking to replicate this success in other Latin American markets, including Mexico and Colombia.
The company's financial performance in the first quarter of 2024 underscores its growth trajectory, with revenues soaring more than 69% year over year and adjusted net income surging an impressive 143% compared to the previous year. It increased its customer base by 5.5 million in the quarter, reaching a total of 99.3 million globally. The increasing trend toward digitization is expected to further propel NU's growth.
Despite facing challenges such as foreign exchange risks and intense competition, NU's future growth prospects remain promising. We believe key future growth catalysts are geographic expansion into countries like Argentina, Peru, Chile and Uruguay, as well as the enhancement of services in existing markets such as Mexico and Colombia.
Healthy Returns on Capital
Return on equity (ROE), an indicator of profitability, shows how efficiently a company uses its shareholders' investments to generate earnings. NU’s trailing 12-month ROE is 22.9% compared with the industry’s 6.1%. NU has demonstrated effective investment in profitable areas, as reflected in its return on invested capital (ROIC). The company’s trailing 12-month ROIC is 9.8%, ahead of the industry average of 4.1%.
Strong Top and Bottom-Line Prospects
The Zacks Consensus Estimate for NU’s 2024 earnings is pegged at 41 cents, indicating 70.8% growth from the year-ago level. Earnings in 2025 are expected to increase 53.1% from the prior-year actuals. The company’s sales are expected to increase 52.6% and 32.2% year over year, respectively, in 2024 and 2025.
Stock Looks Cheap Despite Massive Rally
Despite the impressive rally this year, NU’s stock remains relatively less expensive, indicating potential for further appreciation. If we look at the forward 12-month Price/Earnings ratio, NU shares currently trade at 24.19X forward earnings, significantly lower than the industry’s 38.19X.
Based on EV-to-EBITDA, NU is currently trading at 23.56X, close to the industry’s 58.98X.
NU is a Buy
NU presents a compelling investment opportunity. Despite significant price increases, the stock remains relatively less expensive, suggesting room for further growth. The company's effective business model, strong top and bottom-line growth prospects, and expanding customer base, all contribute to its potential for continued success.
NU’s robust financial health and positive growth outlook make it a must-buy for investors seeking exposure to the fintech sector. The company's strategic initiatives and strong market position are likely to drive further appreciation in the stock price, making it an attractive investment opportunity.
NU currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.