Shares of Nu Holdings(NYSE: NU) have skyrocketed to an 88% gain this year amid strong growth and accelerated profitability from Latin America's largest digital bank. With the stock trading at a 52-week high, expectations are building into the company's upcoming third-quarter earnings report (for the period ended Sep. 30), set to be released on Nov. 13.
Let's discuss what to expect and whether Nu Holdings stock could be a good buy right now.
An outperforming Warren Buffett stock
Warren Buffett must have seen the potential in Nu Holdings when Berkshire Hathaway emerged as an investor around the time of the company's initial public offering in 2021. At the time, the $1 billion investment stood out as an outlier within Berkshire's equity portfolio, historically built around more mature companies from developed markets.
A lot has changed in the past three years, with Berkshire Hathaway's current position in Nu stock valued at $1.7 billion, representing a 2.2% stake in the company. It's fair to say Nu Holdings has positively surprised many people through its successful market strategy.
Image source: Getty Images.
Profitable growth into 2025
Nu Holdings is benefiting as customers increasingly use the platform as their primary banking account, while engaging more with the platform by adding new products over time.
Nu's results this year have been highlighted by its continued ability to monetize its 105 million customers, a level that has climbed by 25% over the past year across countries like Brazil, Colombia, and Mexico.
In the last reported second quarter (for the period ended June 30), the average revenue per active customer (ARPAC) reached $11.20, up 30% on a foreign exchange (FX)-neutral basis from last year. The rapidly expanding level of customer deposits as a low cost of funding has supported a significant increase in lending activities. Solid credit metrics propelled Q2 revenue up 65%, while adjusted net income more than doubled from the period last year on an FX-neutral basis.
Overall, Nu Holdings is on a hot streak, and the market will want to see further momentum across these core indicators in the third quarter to reaffirm Nu's earnings trajectory.
| Nu Holdings metric | Q2 2023 | Q2 2024 | YOY change |
|---|---|---|---|
| Customers | 83.7 million | 104.9 million | +25% |
| FX neutral ARPAC | $8.60 | $11.20 | +30% |
| FX neutral revenue | $1,728 million | $2,849 million | +65% |
| FX neutral adjusted net income | $243 million | $563 million | +131% |
| FX neutral total lending portfolio | 12.7 billion | 18.9 billion | +49% |
Data source: Nu Holdings. YOY = year over year.
Nu Holdings Q3 earnings preview
According to an average of Wall Street estimates, Nu Holdings is forecast to report Q3 revenue of $2.9 billion, up 39% from Q3 2023. The consensus is for Q3 earnings per share (EPS) of $0.11, representing a 57% increase from the $0.07 result last year.
At least matching those expectations will be important this quarter, but management comments covering current conditions and the company's outlook into 2025 could play a bigger role in the immediate stock market reaction to the Q3 report. In this case, details of the loan portfolio, including delinquency ratios and the net interest margin, will matter to the extent they confirm the region's macroeconomic setup remains resilient.
From a high level, Nu Holdings is well positioned to capture the secular tailwind of a growing consumer class in Latin America and a still-large underpenetrated banking population. There is a sense that the trends are still in the early stages of a multidecade-long opportunity.
These factors and the growth outlook help to justify a pricey valuation for shares of Nu Holdings, currently trading at 36 times its full-year consensus EPS as a forward price-to-earnings (P/E) ratio. That level represents a premium to some fintech leaders like Block or PayPal, closer to a forward P/E ratio of 20, but also a discount to banking disruptors like SoFi Technologies at an even wider 85 multiple or Rocket Companies at 56.
Strong Q3 earnings from Nu Holdings could be the catalyst for shares to rally, with some precedents in the market to sustain a higher valuation.
NU PE Ratio (Forward) data by YCharts
The big picture for investors
Buying any stock ahead of quarterly earnings can be tricky, as the several moving parts of the report with a layer of uncertainty can lead to a round of volatility should the results disappoint. Acknowledging those risks, I believe shares of Nu Holdings still deserve a buy rating with upside into 2025 and beyond. Investors staying focused on the big picture over the long run should continue to be rewarded by this high-growth industry leader.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Block, and PayPal. The Motley Fool recommends Nu Holdings and recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
