Is Nu Holdings stock worth buying while it is below $15?

Nu Holdings (NU 4.29%) began trading on public markets in December 2021. Since then, things have been far from calm.

The stock is down 57% in 2022. However, as of the start of 2023, fintech stocks skyrocketed 176% as of Aug. 6. There could be more growth in the long run.

At the time of writing, Nu stock is trading below $15, under pressure from a 17% decline since mid-July. Does that make it an obvious buy?

Posting Rapid Growth

Nu Holdings is a digital banking powerhouse. Without the need for physical bank branches and using a mobile-first approach, the company offers customers a variety of financial services products to meet their banking needs. Nu has a huge presence in Brazil, but also operates in Mexico and Colombia.

It’s amazing how much success companies can achieve by simply using technology to create better user experiences. This helps Nu in a situation where Latin America’s population is severely unbanked or underbanked. The growing penetration of the internet and smartphones also adds a supporting backdrop that could expand Nu’s total addressable market.

Investors are enamored with Nu’s financial gains. In 2023, the company grew revenue by a staggering 68% year-over-year. That momentum continued this year, with sales up 64% in the first quarter of 2024, driven by Nu adding 5.4 million net new customers to its platform in three months. This rapid growth trend should continue with better cross-selling, more account additions, and improved monetization.

Going against the trend

It is not uncommon for companies to grow so quickly while posting consistent net losses. Eventually, management teams adopt a philosophy of aggressively investing in product development, sales, and marketing. The promise is that positive profits will be achieved at some point in the distant future.

In its defense, Nu bucks the trend. It’s already on a financially sustainable path. Net income rose 160% in Q1 to $379 million. That was a faster pace of growth than the top line, indicating a scalable business model. And it was the seventh consecutive quarter of positive and rising profits.

The benefit of not having to operate brick-and-mortar branches and not having to deal with these overhead costs could result in long-term, profitable growth for Nu. “While we are pleased with our first-quarter results, it is important to reiterate our commitment to managing our business for long-term value creation,” CFO Guilherme Marques do Lago said during a Q1 2024 earnings conference call.

Wall Street analysts are forecasting Nu’s earnings per share to rise from $0.21 in 2023 to $0.77 in 2026, which would translate to an impressive 53% compound annual growth rate. It’s always a good idea to be skeptical about forecasts, but Nu’s growth trajectory is undoubtedly impressive, making it easy for investors to be bullish.

Riding the wave of Buffett’s popularity

Nu has enjoyed extraordinary success in Latin America, a region ripe for the fintech revolution. Revenue and revenue growth have been excellent. But there’s another reason to like the business.

Berkshire Hathaway has been a shareholder since Nu’s initial public offering, and the conglomerate currently holds 2.2% of the shares outstanding. It is unclear whether Warren Buffett or someone else on his team found the business. However, realizing that an expert Oracle of Omaha banking analyst is a shareholder should give potential investors confidence that Nu is a worthy investment candidate.

The market weakness has seen Nu shares fall 17% from their peak price set last month. The stock is now trading at an attractive price-to-earnings ratio of 28.

With the company’s shares trading well below $15, they appear to be a good buying opportunity for long-term investors.

Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has a position in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.