Nu Holdings (NU) stock price is firing on all cylinders as the company’s growth momentum in the Latin American region accelerates. It has jumped by almost 50% this year, beating most fintech companies like PayPal, Block, and Shift4 Payments. The stock has also outperformed the Nasdaq 100 and S&P 500 indices.
Fast growing fintech giant
Nu Holdings is one of the fastest-growing fintech companies in the Latin American region. It is a company that is disrupting the banking sector, which has made it the second-biggest firm in Brazil by market cap after Petrobras. It is backed by Saudi Arabia, Softbank, and Warren Buffett.
Nu Holdings’ annual revenue has soared from over $337 million in 2019 to over $6.45 billion in 2023 and the management believes that this trend will continue. It has achieved that by offering multiple solutions like deposits and lending in one simple-to-use application.
In the most recent financial results, the company said that it had achieved almost 100 million customers, a remarkable feat for a company that had just 1.9 million users in 2017.
Nu Holdings believes that it has a huge total addressable market considering that the South American, Central American, and Mexico have over 660 million customers. In Brazil alone, Nu counts about 54% of the adult population as customers. It is also expanding in the US, a decision I believe could backfire, as companies like HSBC and Barclays have learnt.
Most importantly, Nu Holdings is achieving this growth while spending little on marketing, with most of its growth being driven by word of mouth. As a result, it has managed to become a profitable company fairly quick. It made a net profit of over $1 billion in 2023 after losing $364 million a year earlier.
Nu Holdings earnings ahead
The next important catalyst for the Nu Holdings stock price will be its financial results, which are scheduled on Tuesday next week. These results will show whether the company was continuing its growth trajectory.
The most recent results showed that its total revenue rose by 64% in the first quarter to $2.736 billion. It had made $2.4 billion in the previous quarter and $2.13 billion in the third quarter of last year.
Nu holdings has continued to generate strong quarterly profits. It made over $142 million in the first quarter of 2023 followed by $225 million in Q2, $303 million in Q3, $361 million in Q4, and $379 million in Q1 of this year.
Analysts are optimistic about Nu Holdings ahead of its earnings. The average estimate is that its revenue will come in at $2.92 billion, representing a 56% year-on-year growth rate. For the year, analysts expect the company’s revenue will move to $11.4 billion this year followed by $14.5 billion in 2026.
In terms of profits, Nu Holdings is expected to make $0.09 a share in Q2 followedv by $0.1 in Q3 and $0.41 this year. In the past, Nu Holdings has generated better-than-expected financial results, meaning that this trend may continue.
Nu valuation metrics
Also, this growth rate explains why the company trades at a hefty valuation compared to other fintech companies.
Nu Holdings sports a trailing twelve months (TTM) price-to-earnings (P/E) ratio of 47 and a forward multiple of 32.72.
The closest comparison is an American company known as Dave that offers online banking solutions. Dave has TTM P/E ratio of 13.5 and a forward multiple of 11.4, partly because it has a lower growth multiple than Nu.
Nu Holdings can also be compared with SoFi, one of the most popular digital banking companies in the US. SoFi’s revenue rose from $1.59 billion in 2022 to $2.06 billion in 2023. It has a negative P/E multiple because it is still making a loss.
Most notably, Nu Holdings is about to pass PayPal, one of the best-known fintech companies valued at over $66 billion. PayPal stock has underperformed the market after facing strong competition and having significant margin pressures.
Analysts believe that Nu Holdings valuation can be justified because of its strong growth metrics and the fact that it has started to make a profit. Also, it is gobbling market share in the Latin American market.
Nu Holdings stock price analysis
The daily chart shows that the NU share price tumbled to a low of $9.70 on Monday as most stocks crashed. It then staged a strong comeback as most stocks rebounded and as traders eyed the upcoming earnings.
Nu has moved above the key resistance point at $12.24, its highest point in March and in 2022, shortly after it went public. The stock has remained slightly above the 50-day and 100-day exponential moving averages (EMA).
Therefore, while a lot can happen after earnings, my bias is that the stock will rise. If this view is correct, chances are that they will rise to the all-time high of $13.60, which is almost 10% above the current level.
Source : https://invezz.com/news/2024/08/10/nu-holdings-stock-braces-for-volatility-ahead-of-earnings/
