Nu Holdings Investors Just Got Some Great News. Is It Time to Buy?

Nu Holdings (NYSE: NU) investors received exciting news recently when the company secured regulatory approval to transform its Mexico banking operations into a full-service bank. A dominant player in Brazil's banking scene, Nu is now setting its sights on growing its banking footprint in Mexico.

The move will allow Nu to offer a wider array of products to its Mexico customers and attract more capital. It also positions Nu to shake up the region's highly concentrated banking sector and make financial services more accessible to citizens everywhere. Here's why Nu investors have reason for optimism.

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Nubank has opened up banking for Brazil

Nu Holdings, the parent company of Nubank, has made huge strides in opening up the banking landscape in Brazil. Established in 2013, Nubank has disrupted the traditional banking oligopoly that previously saw five banks control 80% of the country's financial assets.

Thanks to regulatory changes in Brazil, Nu introduced a digital-only neobank model that operates without the overhead of brick-and-mortar branches, drastically reducing costs. This capital-light approach enables Nubank to offer a range of customer-friendly products, including free accounts, credit cards with no annual fees, and competitive borrowing rates.

The growth in the region has been staggering. Nu has successfully expanded its reach to an impressive 101.8 million customers, or 58% of Brazil's adult population. The company has played a pivotal role in addressing the issue of financial inclusion, reducing the number of unbanked or underbanked Brazilians to just 3%.

Recent news will allow Nu to expand its growing presence in Mexico

Nubank is strategically expanding its operations across Latin America, with a focus on Mexico and Colombia. In Mexico alone, their customer base has grown to 10 million, nearly double the amount from one year earlier.

Image source: Getty Images.

Currently, Nu Mexico operates as a Popular Financial Society (SOFIPO), which enables it to offer basic financial services such as deposit accounts, credit cards, and personal loans. However, as a SOFIPO, Nu Mexico faces geographic limitations, reduced deposit insurance, lower deposit limits, and limited investment options, hindering its ability to diversify and expand its offerings.

In April, Nu Mexico secured regulatory approval from the Mexican National Banking and Securities Commission to transition into a full-service bank. This move helps open up Mexico's banking industry for millions of unbanked and underbanked citizens who lack accessible financial services.

Before finalizing this transition, Nu Mexico will undergo a rigorous regulatory audit to ensure compliance with banking standards. Once the transition is complete, Nubank plans to substantially broaden its financial product range.

One notable addition will be payroll accounts, which are essential for employers to deposit employee payments directly -- a service currently accessible to only 36% of adults in Mexico. The expansion will also allow Nu to offer mortgage loans, auto loans, and various investment products for consumers.

Nu is positioned for further growth

Nu has done an excellent job expanding across Brazil and has a dominant market share there. With this recent approval, the bank can further increase its presence in Mexico, where up to 51% of the population remains underbanked or unbanked.

NU Revenue (Quarterly) data by YCharts

The stellar results show in Nu's financials. Revenue growth is solid, and positive GAAP earnings per share have been achieved for eight consecutive quarters. The company is also expanding beyond financial services, which could reduce its cyclical revenue stream and reliance on credit for growth.

Nu is growing nicely, but amid recent volatility in the market, the stock has fallen 23% from its 52-week high. Priced at 31 times earnings and 22 times forward earnings, Nu is expensive compared to other banks -- but it is growing much faster than other banks. With the recent boost to its expansion in Mexico, Nu is well-positioned to continue building on its impressive growth.

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Courtney Carlsen has positions in Nu Holdings. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.