There’s been a lot of excitement in the stock market so far in 2025, mostly related to artificial intelligence (AI). The DeepSeek launch took investors by surprise a few weeks ago, and since then there’s been a torrent of high-profile earnings reports like those of Apple, Amazon, and Alphabet.
Despite all that, the S&P 500 index is up only 3% this year. It’s just off its all-time high, and valuations are looking expensive right now. Yet, there are still bargains to be had and excellent stocks with long-term potential. Let’s take a look at Nu Holdings (NU -0.65%) and see if it should be on your buy list this year.
The bull case: Super performance and robust opportunities
Nu has demonstrated stellar growth since becoming a public company in 2021. It has grown its revenue by high double digit rates, and net income too has been increasing at a high rate, climbing from $303 million to $553.4 million year over year in the third quarter.
The company operates as an all-digital bank in its home country of Brazil as well as its newer markets of Mexico and Colombia, and it’s onboarding millions of new members annually. It added 5.2 million new customers in the 2024 third quarter alone and ended the quarter with 109.7 million.
Most of its growth by numbers is still coming from Brazil, which has the largest population of any Latin American country. Nu had 98.8 million customers in Brazil as of the end of the third quarter, or 56% of the adult population, and 60% of active members use Nu as their primary bank account.
Nu has its roots in targeting the mass consumer, who was largely locked out of the highly regulated banking system in Brazil, but it has since drawn attention from an affluent client base as well, who are attracted to Nu’s all-online, easy-to-use financial app.
It’s growing quickly in Mexico, where it added 1.2 million customers in the third quarter for a total of 8.9 million. It’s just getting started in Colombia, where it only has 2 million customers. It recently launched high-rate savings accounts in both of those markets, where its business is gaining traction, but it has a long growth runway.
Besides for adding members, it’s also generating growth from existing members through upsells and cross-sells. It has expanded its platform to include bank accounts, loan products, investing tools, and more, and average revenue per active user is increasing, rising from $10 to $11 year over year in the third quarter.
Active members are using the platform often, indicated by an 83.6% activity rate, up from 82.8% the year before.
The bear case: It operates in a volatile economy
Nu is growing by leaps and bounds, and it has a huge market opportunity in vertical and horizontal layers. However, it operates in a region with economic volatility, which creates risk. As a bank, it also deals with the challenges of economic cycles, and higher interest rates lead to higher defaults. Its nonperforming loans (NPL) have been on the rise, although third-quarter results were in line with expectations.
Image source: Nu Holdings.
It’s also still fairly young and without an extensive track record. That’s typical of almost any high-growth stock, and Nu wouldn’t work for the highly risk-averse investor.
Nu shares trade at a forward one-year P/E ratio of 16, which is a bargain for a growth stock. It’s a higher valuation than that of a typical bank stock, but it’s just a tad higher than some of the largest U.S. banks like JPMorgan Chase, which is trading at a P/E of about 14. Nu is a hybrid, the quintessential fintech stock, using technology to improve the financial services sector. I see the bull case for Nu as much more compelling, and I would focus on the growth part of the company and call this a bargain.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in Apple and Nu Holdings. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and JPMorgan Chase. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
