Now Holdings(NYSE: NOW ) It is a digital bank that has disrupted the traditional banking sector in Brazil. The region was known for limited options and terrible customer fees, making banking inaccessible to many residents. But, with its new approach to banking, Nu has taken the upper hand and been counted on. Berkshire Hathaway Among its investors.
The consumer finance company is expanding its footprint in other key markets in Latin America, including Mexico and Colombia. However, it has been a rocky road for the stock as concerns around its credit continue to grow. On top of that, Berkshire has corrected some of its position, and the stock is down 29% from its recent 52-week high.
With shares trading below $14 per share, is it time to buy the dip in Nu Holdings?
For many years, Brazilians did not have access to inclusiveness. Bank System. Five banks control 80% of Brazil’s financial assets, effectively operating as an oligopoly and imposing high fees on customers. Five years ago, people faced interest rates of 160% on credit card loans and 100% on personal loans.
This was a pain point that Nu Holdings founder and CEO David Velez wanted to address. Thanks to regulatory changes, Nu had the opportunity to disrupt the banking environment facing Brazilians.
The company introduced a digital-only Neobank model that operates without any physical branches. With lower costs, the company can offer free accounts and credit cards with no annual fees and lower borrowing costs, resulting in impressive growth since its inception.
As of 2020, Nubank has increased its customer base from 24 million. Today it is close to 99 millionOr more than 56% of the Brazilian adult population. Over the past several years, the number of unbanked Brazilians has risen from 16.3 million to 4.6 million, or 3 percent of the country’s adult population.
Image source: Getty Images
Nu’s impressive growth may be in its early stages as the company plans to expand throughout Latin America. By entering the Mexican and Colombian markets, Nu embraces the potential of two of the largest economies in the region.
In the third quarter, Nu’s customer base reached 2 million in Colombia and 8.9 million in Mexico. According to the latest data from Susquehanna Financial Group, 51% of the Mexican population is unbanked, which equates to approximately 66 million individuals. That gives Nu a great opportunity to win the hearts of new customers.
Nu is on track to achieve seven consecutive quarters of net income growth. In Q3 alone, Nu posted a profit of $553 million – an impressive 82 percent increase over the same period last year and a 13.5 percent increase over the previous quarter..
Nu is showing rapid growth, but the stock has recently fallen out of favor with investors, down 29%. Despite the strong growth, some investors are concerned that the stock price has risen too quickly, making the valuation too rich. At the end of October 2024, prior to the most recent sale price, Nu was trading at 48 times earnings and more than 10 times sales. Right now, the stock is trading at roughly 31 times earnings and 7 times sales.
In Brazil, credit card activity is slowing and concerns are growing. Specifically, loans 90 days or more delinquent rose to 7.2%, from 6.1% a year ago. Additionally, the company recorded $1.6 billion in write-downs.
Following a period of strong growth, credit card acceptance growth also slowed. Currently, this is 15.2 billion dollars, which is slightly higher than the 14.5 billion dollars recorded at the end of 2023. In Q3, Berkshire Hathaway increased its position in Nu by 19% and now holds 86.4 million shares in the fintech.
Nu Holdings is looking for new heights to increase its total addressable market. In recent years, the company has launched several services including NuPay, NuTravel and NuMarketPlus. It recently introduced Nucell, a mobile phone service that goes beyond financial services.
This multifaceted approach allows Nu Holdings to leverage its large customer base in Brazil, creating a digital ecosystem that promotes sales opportunities. “I believe the opportunity to move beyond financial services by adding more verticals is significant,” Velez said. Finally, Nu aims to reduce the cycle of its revenue streams and reduce its dependence on loans for sustainable growth.
Investors want to look at Nu’s loan growth and loan portfolio. While the recent increase in delinquencies is in line with management’s expectations, further upheavals could ultimately hurt the company’s bottom line.
That said, Nu continues to grow at an impressive pace, and the prospect of expanding into previously underserved markets makes it attractive. Its rapid growth and high valuation make the stock vulnerable to volatility, so it may not be suitable for more conservative investors. However, after the recent selloff, I think Nu is a solid growth stock for long-term investors to pick up today.
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Courtney Carlson It has no place in the said shares. He has positions in the Motley Fool and advises Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has Disclosure Policy.
