Investors usually look to bank stocks for stability and passive income. They're rarely the growth portion of an equity portfolio, but they can keep your holdings on solid ground when the economy or market is shaky.
But today, there's a new cadre of bank stocks that are all-digital and fast-growing. These fintech companies have tremendous opportunity as the future of the industry, and Nu Holdings (NYSE: NU) is leading the way. If you have $1,000 to invest, Nu could be the ultimate bank stock to buy right now.
Disrupting banking in Brazil
If you're wondering why you haven't heard of this powerhouse bank, it's because Nu only operates in Brazil, where it's headquartered, and its newer markets of Mexico and Colombia. North Americans, for the most part, only know of Nu in relation to the stock market. It's a good reason to get to know it better.
Nu offers a broad array of services on its all-digital financial app. It started about 11 years ago when its founders, all tech-industry veterans, found it extremely challenging, and expensive, to open a bank account in Brazil, where the industry is highly regulated. They initially targeted the mass consumer, who could most benefit from cheaper, simple products, but the platform has become so popular that it counts all demographics as participants, and it has some products specifically targeted toward a more affluent consumer base.
It's been a nonstop growth machine since going public three years ago. It had about 54 million members at that time, and today it has 109.7 million. Revenue growth has been outstanding, up 56% (currency neutral) year over year in the 2024 third quarter to $2.9 billion, and net income more than doubled to $553 million.
Its strategy is to upsell and cross-sell products, leading to increases in average revenue per active user, and engagement rates continue to climb, reaching 84% in the third quarter. It was the 12th consecutive quarterly increase in the engagement rate, which measures how many members are engaging with the platform on a monthly basis.
Massive opportunities for more
Nu is still adding more than a million members monthly in Brazil, even though it already has a massive presence there. It's growing even faster in Mexico and Colombia, where it hasn't been operating as long. It added 1.2 million new members in Mexico in Q3 for a total of 8.9 million and reached 2 million members in Colombia. As products and member count continue to increase, they remain a core growth driver for Nu.
The credit portfolio is also increasing at a fast pace. The lending portfolio increased 97% year over year to $5.7 billion, and originations increased 79%. The credit card portfolio was up 33%, and deposits were up 60% over last year to $28.3 billion.
Nu only recently launched its savings account product in Mexico and Colombia, and it's still rolling out new products. Management sees strong opportunities for cross-selling in these regions.
Consider the risks
Nu stock had been on a tear for about two years, but that recently came to an end. Its performance, superlative as it was, was still showing some signs of impact from macroeconomic challenges in Brazil. There's still rampant inflation there, and Nu is managing through it.
However, at the current price, Nu stock looks like a bargain. It trades at a forward 1-year P/E ratio of only 19, which is cheap for a profitable growth stock. As Nu becomes even more profitable and expands its reach, it's getting to a level of stability where most investors can feel comfortable about its prospects despite the current macroeconomic volatility.
If you have some appetite for risk and $1,000 available to invest, I highly recommend Nu stock.
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Jennifer Saibil has positions in Nu Holdings. 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.
