Financial services is one of Warren Buffett's favorite industries. His investment vehicle, BerkshireHathaway, owns a number of insurance and bank stocks.
Another high-profile investor, Cathie Wood, also owns a number of financial services stocks across her exchange-traded funds (ETFs). One rare position that Wood and Buffett share is a fintech company called Nu Holdings(NYSE: NU).
Recently, I was taking a look at some 13F filings and discovered that another well-known Wall Street titan, Israel Englander of Millennium Management, purchased 30.9 million shares of Nu Holdings last quarter -- increasing the hedge fund's position by 370%.
If you're unfamiliar with Nu Holdings, you might want to put it on your radar. Let's dig into what makes this up-and-coming financial services company so attractive, and explore if now is a good opportunity to join Buffett, Wood, and Englander.
What does Nu Holdings do?
At its core, Nu is a banking platform. The company offers a variety of services including credit cards, lending, insurance, and investing -- all made easy through the company's online platform.
Simple enough, right? Well, there's actually a little more to the picture.
While Nu may be seen as a commoditized business offering the same set of products as other larger industry incumbents, there is one big differentiator at play here. Namely, Nu absolutely dominates a key geographic region: Latin America.
Image source: Getty Images.
Why Nu could be a lucrative opportunity
Financial services and online banking may seem second nature for many people. However, many areas around the world have not yet fully integrated these services and technology into everyday life.
In Latin America, digital banking is still an emerging product. According to a recent study by the Inter-American Development Bank (IDB), the number of fintech start-ups across Latin America and the Caribbean has risen by 340% during the past six years. Brazil, Mexico, and Colombia account for the majority of this growth in the region.
These trends have surely been a tailwind for Nu. At the end of the second quarter of 2018, Nu boasted roughly 5 million customers on its platform. As of the end of the 2024 second quarter, the company has grown more than 20-fold to 105 million customers.
As the company continues acquiring more customers, Nu should be able to strengthen its unit economics by cross-selling additional products and services -- further boosting its average revenue per user (ARPU).
With revenue growth eclipsing 50% on a consistent basis, gross profit margin in excess of 40%, and consistent positive net income, Nu is demonstrating an impressive financial profile across the board and I don't see that slowing anytime soon.
Is Nu a good stock to buy right now?
As of the time of this article, Nu trades at a forward price-to-earnings (P/E) multiple of 23.8.
To put this into perspective, Nu's forward P/E is trading considerably lower than those of other emerging fintechs such as SoFi Technologies or Upstart -- both of which compete in much more saturated markets. Moreover, the average forward P/E of the S&P 500 is 23 -- nearly identical to that of Nu. I'd wager that most companies in the S&P 500 aren't having top line growth of between 50% and 60% on a consistent basis all while widening their profit margins.
To me, Nu is very much overlooked and may be mistaken as "just another bank." Financial services have a long runway in Latin America, and given Nu's meteoric rise across the region I'm hard-pressed to believe the company's penetration will be disrupted by another player anytime soon.
I think the stock could easily become a multibagger for long-term investors and see the latest purchase from Englander as a savvy move.
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Adam Spatacco has positions in SoFi Technologies. The Motley Fool has positions in and recommends Berkshire Hathaway and Upstart. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
