Cathie Wood is well known for her aggressive investing style. She's poured billions of dollars into electric car manufacturers like Tesla and BYD, cryptocurrencies including Bitcoin, and dozens of other companies with massive upside potential -- but with plenty of downside potential, too.
Right now, Wood's hedge fund -- ARK Innovation ETF -- owns nearly 1.5 million shares of an incredible growth stock that most investors are clueless about. This up-and-coming fintech business could be her best idea yet.
This could be Cathie Wood's best growth stock investment
Cathie Wood's fund has owned shares of Nu Holdings (NYSE: NU) since 2021 -- the year the company went public. Since that time, Nu stock has been exceptionally volatile. In the 12 months following its IPO, Nu shares lost more than 70% of their value. But following a huge rebound, shares now trade above their original IPO price. How was Nu stock priced at $10 one year, $4 the next year, and then $13 the year after that? Clearly, the market has had a difficult time valuing this company. Even following the rebound, there's reason to believe shares are still significantly underpriced.
Nu is a fintech stock focused on financial services in the Latin America region. It began operations roughly a decade ago, exclusively in Brazil. More recently, Nu expanded into Mexico and Colombia. The pitch was simple: Latin America's banking sector was stuck in the Stone Age. A handful of powerful banks had been around for decades -- or even centuries -- and still offered basic services at high prices. The banks weren't interested in shaking up the industry, but consumers were begging for an alternative. A decade later, it's clear that Nu's pitch was spot on. Before Nu jumped in, nearly the entire market was controlled by incumbent banks. Today, more than 50% of all Brazilian adults are Nu customers. And while that doesn't translate exactly into 50% market share considering customers can have relationships with several banks at once, it does highlight a hefty appetite from the Brazilian market for banking alternatives..
What do people love about Nu? Customers clearly enjoy have more services available instantly at their fingertips. When the company first started, the average customer began by using just one of their products -- say a credit or debit card. Today, new customers start using an average of three products right out the gate. And over time, the average customer consistently ends up using more of Nu's services than what they started out with. In addition to a credit or debit card, they also might start trading crypto, buying insurance, or opening up a business account.
But this is all due to Nu's core competitive advantage: It's focused on tech first, not necessarily financials. It doesn't operate any physical branches, instead delivering its products directly to customers through their smartphones. This way, it can offer more services at a price point the competition can't match. It can also innovate far faster. When the company launched its crypto platform in 2022, the service surpassed 1 million users in its first month.
Put simply, Nu is just about the ideal fintech stock. It combines the rapid growth rates of tech companies with the huge addressable markets of the financial industry. Even Warren Buffett's holding company Berkshire Hathaway is onboard. Berkshire has owned the stock since its IPO, and has yet to sell a single share.
NU Total Return Level data by YCharts.
Should you buy shares of Nu Holdings?
Nu is the perfect stock to invest even just a couple hundred dollars into. That's because it has the potential to turn a few hundred bucks into a few thousand over the long term. Just look at the stock's current valuation. Shares currently trade at just 42 times earnings. And because the company is growing so quickly, shares trade at just 31 times forward earnings -- or what analysts believe the company will earn next year. On average, Wall Street analysts expect the company to grow earnings by more than 50% per year over the next five years. With the S&P 500 trading above 30 times earnings, Nu looks like a relative bargain, even if future results come in a little below expectations.
But buyer beware: High-growth stocks like this can gyrate wildly over the short term. Nu's trading history is a testament to this fact. Nu is one of the most promising growth stocks on the market today, but the biggest rewards will accrue to investors who are able to buy and hold through these temporary swings.
Should you invest $1,000 in Nu Holdings right now?
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Ryan Vanzo has positions in Bitcoin. The Motley Fool has positions in and recommends BYD Company, Berkshire Hathaway, Bitcoin, and Tesla. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
