Nu Holdings Ltd. NU has delivered an impressive performance this year, with its stock surging 76.4%, significantly outperforming the 20.1% rise of the industry and the 17.8% increase of the Zacks S&P 500 composite.
NU’s success can be attributed to its strong business model, which features a well-established brand, an efficient cost structure and effective monetization strategies.
Year-to-Date Price Performance
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As of the latest trading session, the stock closed at $14.70, just shy of its 52-week high of $14.85. It is trading above its 50-day moving average, indicating a bullish sentiment among investors.
In comparison, NU’s peers have not fared as well. Banco Santander (Brasil) S.A. BSBR has fallen 13.3%, while SoFi Technologies SOFI has declined 21.8% during the same period.
Given the sustained strength of NU shares, investors may be wondering if there is still an opportunity to invest in the stock. Let’s take a closer look.
NU has a Dominant Presence in Latin America
NU has established itself as a formidable and innovative force in Brazil's traditionally slow-moving banking sector. The company has set itself apart from the entrenched oligopoly of traditional banks by implementing a unique cost structure. Unlike legacy banks that have dominated the market for years, NU employs a digital-first strategy. This approach significantly reduces customer service costs, allowing NU to offer lower prices and fees compared to its competitors.
The combination of reduced fees and an exceptional digital user experience has led to high customer satisfaction, enhancing NU’s brand reputation among Brazilian consumers. This strong brand image has, in turn, driven word-of-mouth referrals, which have become a major driver of customer acquisition for NU. As a result, the majority of Brazilian adults with bank accounts now consider NU their primary banking institution.
NU’s Expansion Efforts On
NU’s business model, defined by a strong brand, efficient cost structure, and evolving monetization strategies, has proven highly effective. The company is now working to replicate this success in other Latin American markets, including Mexico and Colombia.
The company’s financial results for the second quarter of 2024 underscore its growth trajectory, with revenues up 65% year over year and adjusted net income soaring 214% compared to the previous year. During the quarter, NU added 5.7 million customers, bringing its global total to 105 million. The growing trend toward digitization is expected to further drive NU’s expansion.
Despite challenges such as foreign exchange risks and intense competition, NU’s future growth prospects remain strong. Key growth drivers include geographic expansion into countries like Argentina, Peru, Chile and Uruguay, as well as enhancing services in existing markets like Mexico and Colombia.
Strong Returns on Capital
Return on equity (ROE), a measure of profitability, reflects how effectively a company uses its shareholders' investments to generate earnings. NU’s trailing 12-month ROE is 27%, compared to the industry average of 8%.
Image Source: Zacks Investment Research
NU has also shown strong returns on invested capital (ROIC), with a trailing 12-month ROIC of 11.1%, well above the industry average of 3.8%.
Image Source: Zacks Investment Research
NU’s Promising Top and Bottom-Line Growth
The Zacks Consensus Estimate for NU’s 2024 earnings is pegged at 40 cents, indicating 66.7% growth from the year-ago level. Earnings in 2025 are expected to increase 53.1% from the prior-year actuals. The company’s sales are expected to increase 48.9% and 34% year over year, respectively, in 2024 and 2025.
High Prospects, But Timing is Key
NU’s effective business model, strong growth prospects and expanding customer base contribute to its potential for continued success. However, given the substantial increase in the stock’s price year to date, there is a possibility that the stock could experience a correction. Timing the market is crucial, and potential investors might benefit from waiting for a potential dip before buying.
NU currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
