What happened
Shares of the Brazilian digital bank Nu Holdings (NYSE: NU) traded roughly 5.6% higher as of 12:15 p.m. ET today for no obvious reason, although the stock, as of this writing, was outpacing broader benchmark indexes.
So what
Nu has sold off pretty intensely this year, down roughly 60%. The company went public toward the end of last year with a huge valuation of more than $41 billion. The Latin American digital bank disruptor has the backing of huge investors like Warren Buffett and Berkshire Hathaway and the large venture capital company Sequoia Capital.
While most tech and fintech companies have been sold off, analysts are still optimistic about Nu, with a median 12-month price target of $6.50 per share, representing more than 62% upside.
Now what
Nu undoubtedly has several challenges to deal with in the current environment, including being a high-growth fintech company with a big valuation in a rapidly rising interest rate environment. The Brazilian economy can be a challenge to operate in as well.
But I definitely think the company is headed in the right direction. Nu has acquired close to 60 million customers, largely by making it easier for customers to access traditional banking products and by offering no or very limited fees on its products.
In the first quarter of 2022, the bank generated record revenue of more than $877 million, smashing analyst estimates. The company also continues to make progress in growing monthly average revenue per active customer and becoming the primary bank for many of its customers, all with an industry-low customer acquisition cost.
This is a potentially once-in-a-lifetime disruptor in a massive market, and you can currently invest at a cheaper valuation than Berkshire and Buffett did.
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Bram Berkowitz has positions in Nu Holdings Ltd. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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.
