Should You Buy Nu Holdings While It's Below $15?

Nu Holdings (NYSE: NU) began trading on the public markets in December 2021. It's been anything but a smooth ride since then.

Shares tanked 57% in 2022. But since the start of 2023, this fintech stock has skyrocketed 176% (as of Aug. 6). There might be more upside over the long term.

As of this writing, shares of Nu trade below $15, pressured by a 17% dip after mid-July. Does this make it a no-brainer buying opportunity?

Posting rapid growth

Nu Holdings is a digital banking powerhouse. Without the need for physical bank branches, and using a mobile-first approach, the business offers customers various financial services products to tackle their banking needs. Nu has a huge presence in Brazil, but it also operates in Mexico and Colombia.

It's amazing the success that companies can register by simply using technology to create a superior user experience. It helps Nu's situation that Latin America's population is severely unbanked or underbanked. Rising internet and smartphone penetration also adds a supportive backdrop that can expand Nu's total addressable market.

Investors are enamored with Nu's financial gains. In 2023, the company grew revenue by a jaw-dropping 68% year over year. This momentum carried over into this year, with Q1 2024 sales up 64%. This was driven by Nu adding 5.4 million net new customers to its platform during the three-month period. This trend of rapid growth should continue with better cross-selling, adding more accounts, and improved monetization.

Bucking the trend

It's common to see companies growing this rapidly post consistent net losses. After all, management teams adopt the philosophy of investing aggressively into product development and sales and marketing. The promise is that positive earnings will be achieved at some point well into the future.

To its credit, Nu bucks this trend. It's already on a financially sustainable path. Net income surged 160% in Q1 to $379 million. That was a faster pace of growth than the top line, indicating a scalable business model. And this was the seventh straight quarter of positive and rising profits.

The benefit of not having to operate brick-and-mortar branches and not having to deal with those overhead expenses can result in long-term profitable growth for Nu. "While we are encouraged by the first-quarter results, it's again important to emphasize our commitment to managing our business for long-term value creation," CFO Guilherme Marques do Lago said on the Q1 2024 earnings call.

According to Wall Street consensus analyst estimates, Nu is expected to increase earnings per share from $0.21 in 2023 to $0.77 in 2026, translating to a remarkable compound annual growth rate of 53%. It's always smart to be skeptical of forecasts, but Nu's trajectory is impressive without a doubt, making it easy for investors to be bullish.

Riding Buffett's coattails

Nu is finding remarkable success in Latin America, a region ripe for fintech disruption. Its revenue and income growth are superb. But there's another must-know reason to like the business.

Berkshire Hathaway has been a shareholder since Nu's initial public offering, with the conglomerate currently owning 2.2% of the outstanding stock. It's unclear if Warren Buffett or someone else on his team found this business. However, realizing the expert bank analyst the Oracle of Omaha is a shareholder should give prospective investors confidence that Nu is a worthy investment candidate.

Weakness in the market has propelled a 17% decline in Nu shares from their peak price that was established last month. The stock now trades at a compelling forward price-to-earnings ratio of 28.

With shares well below $15, they look like a smart buying opportunity for long-term investors.

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy .