Prediction: Buying Nu Holdings Stock Today Could Set You Up for Life

Few companies have the ability to grow by leaps and bounds for decades at a time. Nu Holdings (NYSE: NU) is one of those rare businesses.

Yet few Americans may have ever heard of this exciting fintech stock. That's because the digital bank operates exclusively in just three countries: Brazil, Colombia, and Mexico.

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Willing to look abroad to give your portfolio maximum growth potential? There are two reasons in particular that Nu shares offer compelling "buy it for life" potential right now.

1. Crypto adoption should generate big gains

Nu took the Latin American financial industry by storm when it was launched in 2013. Back then, the industry was controlled largely by a consolidated group of stodgy banks with little incentive to mix things up. Nu's founder, a former venture capitalist, realized the market opportunity fairly quickly.

By launching a digital bank that users can access via their smartphones, Nu could strip out the costs involved in maintaining physical branches, passing the savings on to consumers. A digital-only bank could also innovate much faster, delivering new products and services with the push of a button.

The fintech's growth speaks for itself. In less than a decade, it went from zero customers to more than 100 million. More than half of all Brazilian adults are now Nu customers. And while other Latin American markets aren't as attractive from a standpoint of size and per-capita wealth, the region's total population of 650 million still provides many decades of growth.

Nu has been at the forefront of many financial innovations. Crypto could be its biggest opportunity yet. When it launched its crypto service, more than 1 million users signed up in the first month alone. Uruguay, Brazil, Ecuador, and Costa Rica are among the governments pursuing crypto strategies across a wide range of applications -- as are businesses in those countries.

The region's historical reliance on foreign reserve currencies as well as intense volatility for local currencies provide plenty of impetus for a crypto-backed system. And as Nu's own growth attests, consumers on an individual level are very keen to adopt crypto themselves.

Digital currency is still a small market relative to other more mature financial markets. But increasing adoption in Latin America could outpace most other regions of the world. With an early foothold, this could generate tailwinds for Nu for decades to come. And as we'll soon see, this could result in a huge jump in its profitability.

Source: Getty Images

2. Profits should continue to increase

Despite huge growth since going public in 2021, Nu only recently turned profitable. In the first quarter of 2024, profit margins flipped positive and have been widening ever since.

This isn't a fluke. The company has an asset-light business model. Its product is essentially an application, letting it not only scale quickly, but also to spread its minimal fixed costs over a huge user base. Given this, it's very likely that its profit margins will continue to expand barring any sudden change in the competitive landscape or a desire by management to cut prices in to gain market share.

NU Revenue (TTM) data by YCharts; TTM = trailing 12 months.

Growth has slowed as Nu has penetrated more and more of its target markets, but annual revenue gains remain reliably in the double digit percentages. Assuming further widening in profit margin due to rising economies of scale, the stock's current valuation of just 31.2 times trailing earnings looks too good to pass up. The S&P 500 overall, for reference, trades at roughly 29.6 times earnings -- only a bit less.

With a reasonable valuation and plenty of ways to increase both profit and revenue for years to come, Nu remains a compelling investment for those looking to build lifetime wealth over multiple decades.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.