Why Nu Holdings Stock Got Crushed on Monday
Key Points
Rather, it was the surprise result of the presidential runoff election in Brazil.
Most Brazilian stocks declined amid fears that the country's economy would suffer from adverse policies.
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There was nothing new coming from Nu Holdings (NYSE:NU) on Monday, but that didn't stop Mr. Market from assertively selling the stock. Investors weren't necessarily passing judgment on the ambitious fintech's operations; rather, they were reacting to the impact Sunday's presidential runoff election might have on the country's enterprises. As with other Brazilian equities, Nu Holdings stock really took it on the chin, with a nearly 17% sell-off that trading session.
Meet the new boss, same as the old boss
In a result that was unexpected by many observers and members of the electorate, the leftist incumbent, Luiz Inácio Lula da Silva, won the election. He is to govern for another four years.
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While investors often cheer continuity at the top of a nation's government, Lula is a proponent of direct intervention in strategic enterprises (if not necessarily private enterprise in general). Investors worry that this will continue over the next few years, against a backdrop of a struggling economy and depreciating currency.
The Brazilian real took a significant hit post-election, declining in value against the U.S. dollar and other global currencies. The worry is that there will be more where that came from.
Banking on tougher times
Banks and fintech companies are always strategic to any economy. Given that, to a degree, worries about Lula's reelection negatively impacting Nu Holdings are justified -- especially given that the bulk of the company's revenue, by far, comes from its home country.
However, Nu's next-generation financial services have proven highly useful in its historically underbanked home country, so I wouldn't fret about direct intervention in its business. Economic development and the trajectory of interest rates are greater concerns, as Nu's success remains tied to the strength of Brazilian consumers and borrowers.
Still, I think the company has grown to the point where it can weather a slump. What's more, that heavy Monday sell-off feels like an unsustainable panic reaction. Now might be a fine time to pick up Nu stock at a bargain price.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nu Holdings. The Motley Fool has a disclosure policy.
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