Nu Holdings shares do not perform well, shares rise

Nu Holdings Ltd. NYSE: NOW shares are up 119% over the past 12 months. However, investors hoping for a pullback after the company’s slight earnings decline will have to wait. Since the Latin American fintech released its fourth-quarter 2023 earnings report, NU shares have risen more than 8%.

Turning to earnings, the company looked a bit overvalued. The company has a forward P/E ratio of 27x. This is significantly higher than that of traditional banking stocks, which are in the single digits. But when you compare it to other fintech stocks, the picture changes.

For example, NU stock is significantly overvalued compared to PayPal Holdings Inc. NASDAQ:PYPL, which has a forward P/E of 15.4x. However, it has a significantly lower P/E than Sofi Technologies Inc. NASDAQ: SOFIwhich has a forward P/E of 126.5x.

The largest fintech bank in North America

Nu Holdings is a digital bank founded in 2013. Its mission then and now is to disrupt the Latin American banking system. These countries are dominated by a small number of large banks, trapping customers in an ecosystem of high fees for limited services.

The company is growing rapidly. As of the most recent quarter, the bank had a customer base of approximately 94 million in Brazil, Mexico and Colombia. That’s a 57% increase from the 54 million customers the bank had just three years ago. The bank expects to reach the 100 million mark this year as part of its long-term goal of becoming the largest customer platform in Latin America.

The Company is supported by solid fundamentals

There’s a reason investors hold NU stock. The company’s revenue was $2.4 billion. This is a 57% increase year over year. Earnings per share (EPS) of eight cents missed estimates by a cent. But it was 266% higher year-over-year. And the company’s gross margin also increased to 47.5% in the quarter.

Additionally, the bank expects a 51% increase in earnings growth over the next 12 months. That’s less than the 75% earnings growth expected in January, but it’s still strong growth.

However, with the stock up 119% over the past year, it’s fair to wonder if this kind of growth is already priced into NU stock. Analysts seem to think so. THE Nu Holdings analyst ratings on MarketBeat show analysts give NU stock a consensus price target of $9.50. This is more than 14% lower than the closing price on February 29, 2024. However, following the company’s earnings report, Susquehanna reiterated its positive rating on the stock and raised its price target to $12 from 11 dollars.

Nu Stock attracts two major investors

In 2021, Berkshire Hathaway Inc. New York Stock Exchange: BRK.B opened a position in Nu Holdings. The company has since added to that position. And starting in fourth quarter 2023, the holding company will retain its 2.3% stake in the company. It represents only a small part of Berkshire’s portfolio, but it was an early example of Buffett, or his team, placing an emphasis on emerging markets.

It is also interesting to note that Berkshire took its position just a few months after Nu Holdings’ initial public offering (IPO) in December 2021. This means that the company was dealing with some sizeable losses.

Those days are a thing of the past. Now, investors should watch to see at what point Berkshire decides NU stock is worth buying.

In addition to Warren Buffett, Cathie Wood has also shown interest in Nu Holdings. Wood holds more than 2.5 million shares of NU stock in her ARK Fintech Innovation ETF NYSEARCA: ARKF. This makes it the 18th most heavily weighted company in the fund. And like Berkshire Hathaway, Wood initiated his position shortly after the company went public.

Be ready to hit the Buy button

NU shares are trading at a 52-week high, but currently have a relative strength indicator of just over 70. This suggests that investors may be looking to take some well-deserved profits. If so, investors could look to get involved at prices like $10.10 and $9.58, which correspond to the stock’s 20-day and 50-day simple moving averages.

Before considering NU, you’ll want to hear this.

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