Shares of Nu Holdings (NYSE: NU) have skyrocketed to an 88% achieve this 12 months amid sturdy development and accelerated profitability from Latin America’s largest digital financial institution. With the inventory buying and selling at a 52-week excessive, expectations are constructing into the corporate’s upcoming third-quarter earnings report (for the interval ended Sep. 30), set to be launched on Nov. 13.
Let’s focus on what to anticipate and whether or not Nu Holdings inventory may very well be a superb purchase proper now.
An outperforming Warren Buffett inventory
Warren Buffett will need to have seen the potential in Nu Holdings when Berkshire Hathaway emerged as an investor across the time of the corporate’s preliminary public providing in 2021. On the time, the $1 billion funding stood out as an outlier inside Berkshire’s fairness portfolio, traditionally constructed round extra mature corporations from developed markets.
So much has modified previously three years, with Berkshire Hathaway’s present place in Nu inventory valued at $1.7 billion, representing a 2.2% stake within the firm. It is honest to say Nu Holdings has positively stunned many individuals by way of its profitable market technique.
Picture supply: Getty Photos.
Worthwhile development into 2025
Nu Holdings is benefiting as clients more and more use the platform as their major banking account, whereas partaking extra with the platform by including new merchandise over time.
Nu’s outcomes this 12 months have been highlighted by its continued skill to monetize its 105 million clients, a degree that has climbed by 25% over the previous 12 months throughout nations like Brazil, Colombia, and Mexico.
Within the final reported second quarter (for the interval ended June 30), the typical income per lively buyer (ARPAC) reached $11.20, up 30% on a international trade (FX)-neutral foundation from final 12 months. The quickly increasing degree of buyer deposits as a low price of funding has supported a major improve in lending actions. Stable credit score metrics propelled Q2 income up 65%, whereas adjusted web earnings greater than doubled from the interval final 12 months on an FX-neutral foundation.
General, Nu Holdings is on a sizzling streak, and the market will need to see additional momentum throughout these core indicators within the third quarter to reaffirm Nu’s earnings trajectory.
| Nu Holdings metric | Q2 2023 | Q2 2024 | YOY change |
|---|---|---|---|
| Prospects | 83.7 million | 104.9 million | +25% |
| FX impartial ARPAC | $8.60 | $11.20 | +30% |
| FX impartial income | $1,728 million | $2,849 million | +65% |
| FX impartial adjusted web earnings | $243 million | $563 million | +131% |
| FX impartial whole lending portfolio | 12.7 billion | 18.9 billion | +49% |
Knowledge supply: Nu Holdings. YOY = 12 months over 12 months.
Nu Holdings Q3 earnings preview
In response to a mean of Wall Avenue estimates, Nu Holdings is forecast to report Q3 income of $2.9 billion, up 39% from Q3 2023. The consensus is for Q3 earnings per share (EPS) of $0.11, representing a 57% improve from the $0.07 consequence final 12 months.
No less than matching these expectations will probably be essential this quarter, however administration feedback masking present situations and the corporate’s outlook into 2025 may play a much bigger function within the quick inventory market response to the Q3 report. On this case, particulars of the mortgage portfolio, together with delinquency ratios and the online curiosity margin, will matter to the extent they affirm the area’s macroeconomic setup stays resilient.
From a excessive degree, Nu Holdings is nicely positioned to seize the secular tailwind of a rising client class in Latin America and a still-large underpenetrated banking inhabitants. There’s a sense that the traits are nonetheless within the early levels of a multidecade-long alternative.
These elements and the expansion outlook assist to justify a dear valuation for shares of Nu Holdings, at the moment buying and selling at 36 instances its full-year consensus EPS as a ahead price-to-earnings (P/E) ratio. That degree represents a premium to some fintech leaders like Block or PayPal, nearer to a ahead P/E ratio of 20, but additionally a reduction to banking disruptors like SoFi Applied sciences at a fair wider 85 a number of or Rocket Firms at 56.
Robust Q3 earnings from Nu Holdings may very well be the catalyst for shares to rally, with some precedents out there to maintain the next valuation.
NU PE Ratio (Forward) information by YCharts
The massive image for traders
Shopping for any inventory forward of quarterly earnings may be tough, because the a number of transferring elements of the report with a layer of uncertainty can result in a spherical of volatility ought to the outcomes disappoint. Acknowledging these dangers, I consider shares of Nu Holdings nonetheless deserve a purchase score with upside into 2025 and past. Traders staying targeted on the large image over the long term ought to proceed to be rewarded by this high-growth trade chief.
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Dan Victor has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Berkshire Hathaway, Block, and PayPal. The Motley Idiot recommends Nu Holdings and recommends the next choices: lengthy January 2027 $42.50 calls on PayPal and quick December 2024 $70 calls on PayPal. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
