The last 12 months have been profitable for investors, with the S&P 500 index ending the last week at record highs. The bear market has officially ended, which suggests it’s time to make money hand over fist in the upcoming bull run.
In the selloff, which began in 2022, several growth stocks were pummelled due to sky-high valuations, decelerating top-line growth, narrowing margins, and multiple macro headwinds. While several big tech stocks are trading near record highs, several other growth stocks are still available at a discount in early 2024.
One such quality stock is Nu Holdings (NYSE:NU), which is also part of Warren Buffett’s Berkshire Hathaway portfolio. Warren Buffett is arguably the greatest stock market investor of all time. Also called the Oracle of Omaha, Buffett’s investments are closely followed by investors and analysts globally.
Let’s see why it makes sense to hold this cheap Warren Buffett growth stock right now.
Nu is a disruptor
Valued at US$44 billion by market cap, Nu Holdings is a digital bank with a massive presence in Brazil. It is now looking to gain traction in other Latin American markets such as Columbia and Mexico. Its widening customer base and expanding product portfolio allowed Nu to grow revenue from US$360 million in 2020 to US$2.97 billion in 2022.
In the third quarter (Q3) of 2023, Nu Holdings increased sales by 53% year over year while ending the quarter with 89.1 million customers. More than 50% of Brazil’s adult population now have a Nu account, positioning the company to benefit from network effects over time.
A primary reason for Nu’s spectacular rise is the ability of the company to cross-sell and up-sell its portfolio of products and services to existing customers. A large number of users are attracted to Nu due to its robust online platform and low fees. Once onboard, they sign up for additional services, resulting in higher average revenue per active user, or ARPAC.
For instance, if you sign up with Nu to open a banking account, there is a strong chance that you will subscribe to a credit card as well as an insurance plan on the platform.
A highly engaged customer base allowed Nu to end Q3 with an ARPAC of US$10, rising 18% year over year. Moreover, its customer activity rates have surged to 82.8% in Q3, from 81.6% in the year-ago period.
Nu stock is profitable
Unlike most other fintech companies, Nu reports consistent profits. In fact, Wall Street expects Nu’s adjusted earnings to increase from US$0.04 per share in 2022 to US$0.41 per share in 2024. So, priced at 22.6 times forward earnings, Nu stock is really cheap, given its enviable growth rates.
The earnings multiple provides investors with clues as to whether the stock is trading at a fair price. The forward earnings multiple for S&P 500 companies is around 21 times. So, Nu trades at a higher valuation than the market average, but it is growing at a much higher pace.
Despite its attractive valuation, Nu stock has almost doubled in the last 12 months and trades 22% below all-time highs.
Analysts tracking Nu stock expect shares of the fintech company to surge around 10% in the next 12 months.
