Is Nu Holdings Stock a Buy Now?

Nu Holdings' (NYSE: NU) rapid growth in Brazil is undeniable, as the bank has brought banking to millions of unbanked customers in the region over the past several years. As a result of its impressive expansion, the fintech has experienced stellar growth in customers, revenue, and earnings.

One of Nu Holdings' early investors was Berkshire Hathaway, which purchased some of Nu's stock before its initial public offering (IPO) in 2021. Berkshire then experienced a roller-coaster ride, yet held through that volatility until recently, when it cut Nu Holdings from its portfolio in the first quarter.

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With Berkshire Hathaway selling, investors may be nervous about what Warren Buffett and his team might be seeing from the fintech. Here's why Berkshire's sale may not be such a bad thing, and what the future could hold for Nu.

Why Berkshire Hathaway sold Nu

It was somewhat surprising to see Berkshire backing Nu in the first place, given that it's a newer company in a relatively new market, quite different from the type of investment that Buffett typically pursues. Many believe that it was actually one of Berkshire's investment managers, Todd Combs or Ted Weschler, who was behind this decision.

Either way, Berkshire rode the ups and downs of Nu's stock for a while, but it has now opted to step back. One reason why Berkshire may have sold out of its stake is that it could believe the period of rapid growth is over.

The company has expanded rapidly in Brazil, capturing a significant portion of the market. In its latest quarter, Nu announced it had reached nearly 105 million customers in Brazil, or 59% of the country's adult population. Gaining such a huge share of Brazil's population is a significant accomplishment, but there may be concerns that its rapid growth days are in the past.

Another possible concern is Nu's valuation. The stock trades at a price-to-sales ratio of 7 and a price-to-earnings ratio of nearly 28, making it pricey compared to others in the banking space. This premium is due to the company's impressive growth rate, which leads investors to value its shares even more. But if economic troubles arise, Nu's stock could take a sizable hit.

Where Nu's future growth could come from

While Nu's high valuation makes it a riskier stock compared to others, there are positive aspects that could lead to further growth. For example, Nu is now setting its sights on expanding into other key markets in Latin America, like Mexico and Colombia.

In Mexico, Nu currently operates as a Popular Financial Society (SOFIPO), which enables it to offer basic financial services, including deposit accounts, credit cards, and personal loans. However, being a SOFIPO comes with limitations, like restrictions on where it can operate, lower deposit insurance, and limited investment options.

The good news is that in April, Nu Mexico received approval from the Mexican National Banking and Securities Commission to transition into a full-service bank. This milestone opens the banking world to millions of unbanked and underbanked people in Mexico who need better access to financial services.

Before making this transition, Nu Mexico must pass through a detailed regulatory audit to ensure it meets all banking standards. Once this is done, its plans include launching a wider range of financial products, such as payroll accounts, mortgage and auto loans, as well as various investment options for consumers.

Image source: Getty Images.

Nu wants to offer its customers more products beyond banking

Nu is expanding its services beyond financial products, aiming to provide more options to its large customer base. Here are some highlights of its new offerings:

• NuPay: This service allows customers to make digital payments easily, whether shopping online or in store.
• Nu Travel: Users can plan and book flights, hotels, and other travel needs directly through the app.
• Nu Marketplac: A shopping platform where customers can find a wide variety of products and services all in one place.
• NuCel: A mobile phone service.

CEO David Vélez is excited about these changes, saying on a recent earnings call, "We think that there is a big opportunity to go beyond financial services in new verticals that allows us to give more products and services to our customers." By expanding into different areas, Nu Holdings aims to stabilize its earnings, particularly during tough economic times when financial companies can face cyclical challenges.

Is it a buy?

Nu has done an excellent job expanding across Brazil. With its recent approval in Mexico, it can further increase its presence in the region where up to 51% of the population remains underbanked or unbanked.

Nu is expensive compared to other banks, but it is growing much faster than its competitors. With the recent expansion boost in Mexico and ongoing efforts in Colombia, along with its growing verticals in other businesses, Nu is positioned to continue building on its impressive growth.

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