Nu Holdings Ltd. (NYSE: NU) stock is up 119% in the last 12 months. However, investors hoping for a pullback after the company's slight miss on earnings will have to wait. Since the Latin American fintech delivered its fourth-quarter 2023 earnings report, NU stock is up more than 8%.
Heading into earnings, the company looked a bit overvalued. The company has a forward P/E ratio of 27x. That's significantly higher than that of traditional bank stocks, which are in the single digits. But when you compare it to other fintech stocks, the picture changes.
For example, NU stock is significantly overvalued compared to PayPal Holdings Inc. (NASDAQ: PYPL), which has a forward P/E of 15.4x. However, it has a significantly lower P/E compared to Sofi Technologies Inc. (NASDAQ: SOFI), which has a forward P/E of 126.5x.
The Largest Fintech Bank in North America
Nu Holdings is a digital-first bank that was founded in 2013. Its mission then and now is to disrupt the Latin American banking system. These countries are dominated by a small number of large banks, which trap customers in an ecosystem of high fees for limited services.
The company is growing rapidly. As of its most recent quarter, the bank has a base of approximately 94 million customers in Brazil, Mexico, and Colombia. That's a 57% increase from the 54 million customers the bank had just three years ago. The bank expects to reach the 100 million mark sometime this year as part of its long-term goal of being the largest customer platform in Latin America.
The Company is Backed by Strong Fundamentals
There's a reason that investors are holding onto NU stock. The company's revenue came in at $2.4 billion. That was a 57% year-over-year increase. Earnings per share (EPS) of eight cents missed estimates by one cent. But, it was 266% higher YOY. And the company's gross margin also expanded to 47.5% in the quarter.
Furthermore, the bank is projecting a 51% increase in earnings growth in the next 12 months. That's less than the 75% earnings growth it projected in January, but it's still strong growth.
However, with a stock up 119% in the last year, it's fair to wonder if that kind of growth is already priced into NU stock. Analysts seem to think so. The Nu Holdings analyst ratings on MarketBeat show that analysts give NU stock a consensus price target of $9.50. That's more than 14% below its closing price on February 29, 2024. However, since the company's earnings report, Susquehanna reiterated its Positive rating on the stock and lifted its price target to $12 from $11.
Nu Stock Attracts Two Notable Investors
In 2021, Berkshire Hathaway Inc. (NYSE: BRK.B) initiated a position in Nu Holdings. The company has since added to that position. And as of the fourth quarter 2023, the holding company is maintaining its 2.3% stake in the company. It represents only a thin sliver of Berkshire's portfolio, but it was an early example of Buffett, or his team, putting an emphasis on emerging markets.
It's also interesting to note that Berkshire took its position only months after Nu Holdings' initial public offering (IPO) in December 2021. That means that the company was sitting on some healthy losses.
Those days are in the past. Now, investors should watch to see at what point Berkshire decides NU stock is worth a buy.
In addition to Warren Buffett, Cathie Wood has also shown an interest in Nu Holdings. Wood holds over 2.5 million shares of NU stock in her ARK Fintech Innovation ETF (NYSEARCA: ARKF). That makes it the eighteenth-highest-weighted company in the fund. And like Berkshire Hathaway, Wood initiated her position shortly after the company went public.
Be Ready to Hit the Buy Button
NU stock is trading at a 52-week high but currently has a Relative Strength Indicator of just over 70. That suggests that investors could look to take some well-deserved profits. If that's the case, investors could look to get involved at price points such as $10.10 and $9.58, which correspond to the stock's 20- and 50-day simple moving averages.
