Nu Holdings (NU 2.73%) has become one of the cheapest growth stocks on the market today. Not familiar with it? Many U.S. investors have likely never heard of the Brazil-based digital banking platform. But the statistics below should have you convinced that this is innovative business is one you'll want to own for the long term.
Plus, there are several good reasons to consider jumping in before the company's next earnings release on May 13. For patient investors, owning shares of this fintech business could be one of the best investment decisions they ever make.
NYSE: NU
Key Data Points
This is the perfect fintech stock
Fintech stocks offer a lot of compelling characteristics for investors looking to grow their wealth as much as possible for as long as possible. As the name suggests, fintech businesses combine the best of both the technology and financial sectors. The tech sector, of course, is known for its rapid growth rates due to the potential for rapid uptake and widespread adoption, especially for software businesses that can push new products to millions of customers with the click of a button.
The financial industry, meanwhile, is known for its large addressable markets. After all, money itself is one of the biggest markets there is, and products that deal directly with money itself can amass huge followings.
In this regard, Nu is arguably the perfect fintech stock. Founded in 2013 by former investors and venture capitalists, Nu's business model aimed to revolutionize the consumer financial landscape in Latin America. At the time, most Latin American citizens were banking with old, brick-and-mortar banks. Stodgy incumbents controlled huge parts of the market, often charging high fees for simple services.
Nu's banking services, meanwhile, were immediately available to anyone through a smartphone app. Products like checking accounts, investment accounts, and even insurance and crypto accounts could be rolled out and adopted the same day by millions of users. Without the costs involved in maintaining physical infrastructure, Nu was able to keep its fees lower than the competition, aiding its customer acquisition growth rates.
There was clearly huge demand for Nu's services since launch. Even after entering just three markets -- Brazil, Colombia, and Mexico -- Nu has grown from essentially zero customers in 2013 to more than 100 million. I've written in the past that Nu's best days of growth are behind it, since it has already penetrated its top three most attractive markets. But as you'll see below, Nu's stock price has gotten so cheap that it's getting difficult to ignore, even if growth rates will be lower than in the past.
2 reasons to buy Nu Holdings right now
In previous years, it was a regular sight to see Nu more than double its sales base. Given how much it has penetrated its existing markets -- for example, more than 50% of all Brazilian adults are already Nu customers -- don't expect these growth rates to be achieved again anytime soon. But sales are still growing briskly due to less mature markets like Colombia and Mexico, plus the company's consistent ability to cross-sell additional products to existing customers. This quarter, analysts expect sales to grow by more than 50%.
NU Revenue Growth Estimate for Current Quarter data by YCharts.
Besides brisk sales growth, you'll notice one other thing about the charts above: Nu is already profitable. Shares trade at just 23.9 times trailing earnings, a slight discount to the market overall. Yet sales are still growing by more than 50% annually! On a forward basis, then, shares trade at just 17.2 times next year's expected earnings. That's incredibly cheap for a proven growth stock like Nu.
Many investors are still unaware of Nu, since it primarily focuses on the Latin American market. But with consistently high sales growth and a rock bottom valuation when it comes to profitability, shares look like a steal for investors willing to remain patient through recent volatility. If the company meets or exceeds expectations this quarter, we could see shares rerate in a hurry.
