Although Nu Holdings' (NYSE: NU) third-quarter financial results showed strength in key metrics, the market still wasn't pleased with the results. That's obvious when you see that the share price of this digital banking business is currently 35% below its all-time peak from Nov. 11, just two days before the latest earnings update.
However, this dip presents an attractive opportunity. Here are four reasons investors should buy this fintech stock like there's no tomorrow.
Nu Holdings had its initial public offering (IPO) in December 2021, just after the stock market's bull run had ended and just before the Federal Reserve embarked on an aggressive rate-hiking cycle. You could say management missed the mark on timing.
However, the investment community wasn't deterred. In fact, Berkshire Hathaway, the conglomerate headed by legendary capital allocator Warren Buffett, has been a shareholder since the IPO.
Berkshire held on to its full position firmly, riding Nu to an impressive 105% gain in 2023 and 55% gain through the first six months of 2024. However, in the third quarter, the 13-F filing revealed that the Oracle of Omaha's company sold over 19% of its position. Nonetheless, it still owns 1.8% of Nu's outstanding shares.
Given Buffett's adeptness at analyzing financial services companies, the fact that he's an owner of Nu should give retail investors confidence.
According to the management team, Nu is the world's largest digital banking platform outside of Asia. The business offers bank accounts, credit cards, insurance and investment products, and loans to customers without a costly physical bank branch. Nu has benefited from increasing smartphone and internet penetration in the countries that it serves (Brazil, Mexico, and Colombia), as well as the rising incomes of citizens.
Growth has been spectacular. Nu generated $2.9 billion in revenue in Q3, up 512% compared to three years prior in Q3 2021. This has been driven by the customer base expanding from 48.1 million to 109.7 million during the same period of time.
There's still a tremendous opportunity to expand the business as we look to the future. Latin America Reports estimates that 70% of the population in the region is either unbanked or underbanked. Add this to the fact that Nu is only in three countries right now, and you can easily see how much upside potential there is.
You typically see fast-growing companies posting sizable losses. However, Nu bucks this trend. It's actually extremely profitable. Net income increased 83% year over year to $553.4 million in the third quarter. That rate of growth was faster than the revenue jump. Margin expansion is a clear indicator of a scalable business model. Nu is able to leverage its large overhead expenses, such as customer support and general and administrative functions, as the sales base increases.