Nobody enjoys stock drawdowns. They can provide buying opportunities for high-quality businesses, sure, but it is never fun to see your personal wealth go down in value. Right now, stocks listed in the United States have entered a slight drawdown, with many faster-growing and higher-volatility names heading into some steep declines.
One stock on my radar is Nu Holdings (NYSE: NU). The financial technology (fintech) company focused on the Latin American market is in a 32% drawdown as of this writing, even after reporting more stellar earnings for the fourth quarter of 2024.
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Shares look fairly cheap today, and with a long runway to grow revenue, users, and profits, I think the stock will be setting an all-time high in the not-so-distant future.
Bringing mobile banking to Latin America
The world is moving to digital banking. Eventually -- at least for consumer banking -- bank branches will be a thing of the past. This is true not just in the United States, but around the world.
Nu Holdings management saw the opportunity in digital and mobile banking when they founded the business over 10 years ago, bringing a mobile banking application to the Brazilian market. Nu Bank is the result.
A fintech platform that is now used by over half of the adult Brazilian population, it has taken the country by storm and upended traditional financial institutions. For a citizen in Brazil, Nu Bank can offer services for all your personal finance needs. This means bank accounts, credit cards, investing, personal loans, and even insurance. With an intuitive modern interface, the platform has grown like gangbusters in Brazil and now has close to 100 million users.
Nu Holdings revenue hit $3 billion last quarter, up 50% year over year. In 2021, revenue was just $636 million in the fourth quarter. Most of this growth is due to the Brazil market, where Nu Bank is now generating close to $10 billion in annual revenue. That is mighty impressive for a company that only entered the Brazilian market 10 years ago.
More revenue growth incoming
With over 50% of the adult population using the service, Nu Holdings is approaching user saturation in its home market of Brazil. This does not mean revenue growth will stall out, though. There are two key reasons why Nu Holdings revenue can keep growing at a quick rate.
First, there is plenty of room for revenue to grow from existing Brazilian customers. According to its customer cohort analysis, older Nu Bank users generate an average of $25 in revenue per month, compared to $10 for Nu Bank overall. In simpler terms, the longer you are a customer with Nu Bank, the more revenue you generate for them. Over the next few years, the tens of millions of customers Nu Bank acquired in the last few years should start utilizing the platform more often, which will lead to more consolidated revenue growth.
Second, Nu Holdings is not only set on operating in Brazil. It has already entered Mexico (10 million customers) and Colombia (2.5 million users) to roaring success. In the next 10 years, it plans to enter even more Latin American markets as well.
These countries are not nearly as profitable as Brazil at the moment, but have similar potential to Nu Bank's home market, although with smaller populations. Still, it is a huge opportunity for Nu Bank in a global region with a population of over 650 million.
Why Nu Holdings is a buy
Even with such a short operating history, Nu Holdings has shown a tremendous ability to grow its users and revenue. Now, it is starting to generate real profits for shareholders.
Net income hit close to $2 billion in 2024. That is compared to negative earnings just a few years ago. As the business scales in new markets such as Mexico and Colombia, we should see bottom-line earnings grow even faster than revenue. I wouldn't be surprised if Nu Bank's net income more than doubled to $5 billion within just a few years.
As of this writing, Nu Holdings stock has a market capitalization of approximately $50 billion. That is a trailing price-to-earnings ratio (P/E) of just over 25. However, if we expect net income to grow to $5 billion in a relatively short time period, that would bring the P/E down to 10, which looks very cheap for a fast-growing business, even if it is a bank. This makes Nu Holdings stock a buy and likely to hit a new all-time high within the next few years.
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*Stock Advisor returns as of March 3, 2025
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 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.
