It was only last month that Nu Holdings stock (NU) hit a new 52-week and all-time high of $16.15. Yet, in the days since, the stock has steadily tumbled, now sitting roughly 36% lower. While the recent sell-off in NU stock may be justified by macroeconomic and geopolitical concerns rattling investors, I believe the stock now presents a highly attractive opportunity at its current levels. The company’s revenue growth momentum remains stellar, and profitability is surging, all while the stock trades at a compelling valuation. As such, I am bullish on NU stock.
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Brief Overview of NU and Recent Stock Decline
I understand many readers might not be familiar with Nu Holdings or why its stock has seen such a sharp drop over the past month, so here’s a quick overview. Essentially, Nu, generally known as Nubank, is one of the world’s largest digital financial platforms, primarily operating in Brazil, Mexico, and Colombia. The company started with digital banking and credit cards but has since expanded into other areas, including loans and offerings like travel services with NuTravel and even telecom through NuCel. The company now boasts a staggering 110 million customers, yet growing at incredible rates.
So why has NU stock faced so much pressure recently? Honestly, there doesn’t seem to be any company-specific news that explains it. Rather, the decline can be likely attributed to macroeconomic headwinds in Latin America, including currency fluctuations and inflation fears in Brazil, as well as concerns over rising interest rates impacting the company’s credit portfolio.
Another reason I can think of is a broader sell-off in high-growth stocks, which has likely weighed on investor sentiment of NU stock, too. In any case, these concerns appear way overblown, given Nu’s outstanding operating metrics, which exhibit continued growth potential.
NU’s Exceptional Growth Momentum Defies Concerns
Now, to illustrate Nu’s performance momentum and address current investor concerns, let’s quickly look at the company’s most recent Q3 results, which provide clear evidence to the contrary. During the period, Nu added 5.2 million new customers, bringing the total to 109.7 million—a 23% year-over-year increase. Further, the company reported revenue of $2.9 billion, marking a 56% year-over-year increase on a currency-neutral basis. According to management, this growth was driven by substantial customer additions, high activity rates (up to 84%), and higher average revenue per active customer (ARPAC), which rose 25% to $11.
In turn, Nu’s gross profit surged by an even stronger 67% YoY to $1.3 billion, as gross margins expanded to 46%. Lending operations shone exceptionally bright, with the lending portfolio growing 97% year-over-year. Also, Nu’s credit card receivables rose 33%, indicating strong consumer demand and Nu’s success in up-selling within its ecosystem.
Nu’s net profits were equally impressive. Net income was $553 million, up 76%, while adjusted net income grew 89% to $592 million. These disproportionate increases in net income, topping both revenue and gross profit growth, clearly indicate the scalability of Nu’s model as it consolidates its foothold in the market.
Valuation Looks Very Attractive After Recent Decline
Given the growth metrics we just saw, you can see why NU stock’s valuation has become highly appealing after its significant decline over the past month. Consensus estimates now project EPS of $0.41 for 2024, implying a stellar 93% year-over-year growth.
Over Fiscal 2025, 2026, and 2027, analysts expect EPS growth rates of 40%, 37%, and 55%, respectively, backed by Nu’s lasting customer acquisition, cross-sell opportunities, and scaling of operations in Mexico and Colombia. So even if NU’s earnings growth slows down from this year’s levels, it will most likely remain incredibly strong over the medium term.
Therefore, while Nu trades at a P/E of just 25x based on 2024 earnings, considering its rapid growth, its P/E is set to compress to an estimated 8.6x by 2027 on projected EPS of $1.21 at today’s price levels. For this reason, I view this setup as a rare opportunity for valuation-driven multiple expansion, potentially driving a significant upside in the stock price.
Is NU Stock a Buy, According to Analysts?
Despite NU stock’s sharp decline, Wall Street analysts appear rather optimistic about its future prospects. Specifically, NU stock features a Moderate Buy consensus rating based on five Buys, one Hold, and one Sell recommendation over the past three months. At $17.38, the average NU stock price target implies an upside potential of about 68% from its current levels.
For the best guidance on buying and selling NU stock, look to Golman Sachs’ (GS) Tito Labarta. He is the most accurate and most profitable analyst covering the stock (on a one-year timeframe), boasting an average return of 44.48% per rating and a success rate of 60%.
Summing Up
In closing, while significant, NU stock’s recent stock decline appears largely disconnected from its stellar operational performance. The company continues to redefine digital banking in Latin America, achieving strong customer growth, revenue gains, and expanding profitability. Even if today’s macro concerns prove impactful, they seem overblown, given Nu’s hyper-growth metrics and momentum. In the meantime, the stock’s current valuation serves as the icing on the cake.
Alongside substantial upside potential driven by an expected multiple expansion aligned with Nu’s impressive growth, the stock also provides a notable margin of safety at these levels. This mixture of growth opportunity and downside protection further reinforces my bullish outlook on the stock.
