Nu Holdings (NU) is a digital bank that has been picking up a lot of momentum in Latin America. In fact, it has outperformed the S&P 500 (SPY) and the Nasdaq Composite (QQQ) year-to-date and looks poised to continue on that path. As a result, I am bullish on NU stock due to its diversified financial products, strong financials, and more than 100 million customers.
Diversified Financial Products
The first reason why I am bullish on Nu Holdings is because it offers a wide range of financial products that allow consumers to manage all of their finances in one hub. The digital bank allows people to open bank accounts, credit cards, personal loans, and investment accounts, among other financial products. If you use one of Nu Holdings’ financial products, it’s easier to use more of the company’s products and services, therefore maximizing the average lifetime value per customer.
While it’s common for many financial institutions to offer these products, Nu Holdings does it as a digital bank, which means less overhead. Fewer overhead costs give Nu Holdings the opportunity to report outsized net profit margins instead of relying exclusively on top-line growth. It can also offer more competitive rates and terms for its loans and savings accounts.
Revenue and Net Income Continue to Rise
Adding to my positive sentiment is Nu Holdings’ financial performance. Indeed, it has reported steady revenue and net income growth for several quarters, prompting the stock to more than double over the past year. The company’s Q2 2024 results demonstrated why the digital bank has been outperforming the stock market. Revenue reached $2.85 billion in the quarter, up from $1.87 billion in the same quarter last year.
While revenue increased by more than 50% year-over-year, net income more than doubled year-over-year, reaching $487.3 million. The stock has a P/E ratio of 46, which will become more attractive as Nu Holdings continues to report exceptional net income growth.
Rising revenue almost guarantees that the fintech firm will continue to increase its net income. Indeed, Nu Holdings wrapped up the most recent quarter with a 33% net profit margin.
The Opportunity in Latin America
Now, we will move onto a catalyst that will help Nu Holdings maintain its growth rates for a while – geographical location. Most of the firm’s customers are based in Latin America, which is one of the fastest-growing regions on the planet. The region enjoyed a 22.7% compounded annual growth rate (CAGR) in e-commerce sales from 2018 to 2022.
No other part of the world matched Latin America’s CAGR during that stretch. Spending is rising in the region, and many people are turning to Nu Holdings for loans, credit cards, and other financial products.
E-commerce growth rates demonstrate that consumers are willing to spend money and make more purchases. In addition, the Latin American banking-as-a-service market is projected to maintain a 19.5% compounded annual growth rate from now until 2028.
Member Activity Remains High
Finally, we arrive at my last bullish point – high member activity. Nu Holdings relies on a growing, active customer base to generate rising revenue and profits. That’s the truth for any business, and Nu Holdings exhibited strong metrics in both of those areas. The digital bank closed out the second quarter with 104.5 million customers. That’s a 24.9% year-over-year increase and a 5.2% sequential increase. Furthermore, Nu Holdings’ wide range of financial products makes it easier for these customers to remain active. In fact, the fintech firm reported an 83% activity rate, meaning it wrapped up the second quarter with 87.2 million active customers.
A high activity rate combined with a steadily growing user base suggests a long-term opportunity that can result in market outperformance. This is especially true when operating in one of the fastest-growing regions on the planet.
Is Nu Holdings Stock a Buy?
Nu Holdings stock is currently rated as a Moderate Buy with a projected 6.6% upside from current levels due to an average NU price target of $15.07 per share. The stock has seven ratings, with four Buys and three Holds assigned in the past three months. The highest price target of $17 suggests even more optimism and implies that NU stock can gain an additional 19% from the current price point.
Nu Holdings Is in the Right Place at the Right Time
Nu Holdings is in the right place at the right time as Latin America continues to grow at a fast pace. The fintech firm has regularly posted high revenue and net income growth, with profit margins now above 30%. It offers high-quality financial products that have attracted more than 100 million users while maintaining an 83% activity rate. Nu Holdings’ financial strength presents an attractive long-term opportunity that investors have been noticing, which is why the stock has more than doubled over the past year and has comfortably outperformed popular benchmarks during that timeframe.
