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Nu Holdings: A Buffet-Backed Bank Stock With Serious Growth Potential

By The Tokenist (Timothy Fries )Stock MarketsNov 04, 2023 03:27
ph.investing.com/analysis/nu-holdings-a-buffetbacked-bank-stock-with-serious-growth-potential-185709
Nu Holdings: A Buffet-Backed Bank Stock With Serious Growth Potential
By The Tokenist (Timothy Fries )   |  Nov 04, 2023 03:27
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Nubank's parent company stock has gained over 130% in 2023 on the back of strong earnings growth and improving profitability.

In around ten years, Nu Holdings Ltd (NYSE:NU) evolved from a digital banking startup to an industry giant, attracting the attention of some of the world’s most prominent investors along the way, including Warren Buffet. Today, the company is trading at a premium valuation, but it continues to be an appealing bet, as highlighted by several major growth indicators.

Berkshire Hathaway Owns 36% of Nu Holdings

It’s been a remarkable journey for Nu Holdings investors so far. Starting as a digital banking startup ten years ago, the company evolved into the world’s largest digital bank, currently serving three key Latin American markets.

Among its key backers is no other than the investing icon Warren Buffet. Although bank stocks are a common thing for Buffet and his Berkshire Hathaway (NYSE:BRKa) Inc, Nu Holdings is one of his more interesting positions, given that the business was unprofitable when Berkshire first invested in it. In addition, it was still a private company at the time.

But it’s still a bank stock at the end of the day. Fast forward to 2023, Nu Holdings has been profitable for several quarters and continues to grow rapidly. Furthermore, the bank stands out from the competition in several ways. Notably, it charges low fees, strives to create a one-stop shop with a complete set of financial services, and is entirely digital.

Meanwhile, most of Nu Holdings’s backers are institutional investors, like Berkshire. In particular, institutions own 36% of the company, implying low retail ownership. At the same time, only a small portion of the company’s shares belong to hedge funds.

Why is Nu Still Appealing for Investors Despite Premium Valuation?

At first glance, it is clear that Nu Holdings is a business with a premium valuation. Nevertheless, the bank continues to show numerous signs of lasting value.

One of them can be found in the company’s Q2 earnings report. The report showed a significant increase in average revenue per active customer (ARPAC). This vital indicator explains why investors are keeping faith with Nu and why the new ones are jumping on it.

ARPAC is a metric that offers investors insights into how the company is doing in terms of growth. It measures how much revenue Nu secures from every customer on average, and if the bank’s strategy is working, that success should be reflected in ARPAC numbers.

And that’s exactly what’s happening with Nu. The company’s ARPAC exceeded $9 for the first time in Q2 2023, marking an 18% year-over-year jump. Furthermore, ARPAC typically decreases when a company welcomes new customers because they purchase fewer or cheaper products. But that’s not the case with Nu. The company added 4.6 million new customers in Q2, and despite that, its ARPAC continued to soar.

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This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Nu Holdings: A Buffet-Backed Bank Stock With Serious Growth Potential
 

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Nu Holdings: A Buffet-Backed Bank Stock With Serious Growth Potential

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