A Promising Fintech Opportunity: Nu Holdings

Cathie Wood and Warren Buffett stand as two of the most recognized investors today, known for their contrasting approaches to investing. While Wood, the CEO of Ark Invest, tends to focus on innovative themes like artificial intelligence and genomics, Buffett, the long-time leader at Berkshire Hathaway, typically favors stable, blue-chip stocks over volatile growth investments.

Despite these differences, there is a noteworthy overlap in their investment portfolios. Both Wood and Buffett have invested in Nu Holdings (NU -1.71%), a lesser-known but rising player in the fintech sector, primarily targeting the Latin American market.

This article explores why Nu Holdings is currently an attractive investment, particularly as we look towards 2025, a year that could mark significant growth for this company.

Strong Performance Indicators for Nu Holdings

Nu Holdings serves as a digital financial services platform, offering an inclusive range of products that include checking and savings accounts, investment opportunities, loans, and more. The company has primarily operated within the markets of Brazil, Colombia, and Mexico.

Recently, Nu announced its investment in Tyme Group, a digital banking platform with 15 million customers in South Africa and the Philippines. As of the end of the third quarter in September, Nu Holdings boasted an impressive 110 million users on its platform, reflecting a 23% year-over-year growth. Additionally, the company's average revenue per user (ARPU) increased to $11, showcasing the platform's ability to enhance profitability.

This focus on customer profitability has allowed Nu to expand its margins significantly. For instance, Nu's gross margin improved by 300 basis points during the last quarter, while net income surged 83% year-over-year to reach $553 million.

Attractive Valuation Amid Growth Potential

Analyzing the financial metrics, Nu Holdings maintains a price-to-sales (P/S) ratio that is relatively appealing within a peer group of international fintech firms. While the current P/S ratio suggests that Nu is attractively priced, it is important to note the recent downward trend in this metric. This decline is likely influenced by fluctuating macroeconomic conditions in Latin America, especially in Brazil.

Despite these economic challenges, selling off the stock seems unwarranted as Nu's fundamentals remain strong.

Drawing Parallels with SoFi Technologies

A similar fintech company, SoFi, has faced its own hurdles in recent years. Like Nu, SoFi provides various financial services primarily through its mobile application, with lending being its main revenue source. Recent inflationary pressures and an aggressive monetary policy by the Federal Reserve significantly impacted SoFi's lending business, causing investor concern.

However, positive changes in the economic landscape allowed SoFi's lending operations to rebound at the end of last year, resulting in an impressive 80% increase in stock value since mid-September's rate cut.

These concerns surrounding economic conditions echo the worries regarding Nu Holdings' growth in Brazil. However, investors should maintain a long-term perspective, recognizing that economic cycles tend to improve over time.

In conclusion, while short-term challenges exist for Nu, the long-term outlook appears bright, bolstered by a growing user base, cross-selling opportunities, and a strengthening economy. I believe Nu Holdings has the potential to mirror the success seen by SoFi, making it a compelling choice for long-term investors.

Author has positions in SoFi Technologies. No positions in mentioned companies. Investing involves risks, and strategies should be carefully considered.

investing, fintech, growth