Large companies rarely go on sale. But a fintech stock I’ve been following for years just experienced a sudden correction. Give your wallet an early gift by investing in this quality company before the holidays.
I’ve been a big fan of it Now Holdings(NYSE: NOW) since its IPO in 2021. And I’m not alone in my fandom. Warren Buffett has snapped up more than $1 billion in shares, a stake he has refused to reduce even as the stock price has skyrocketed more than 200% since mid-2022.
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What do I like most about Now? It has developed a proven recipe for growth that must be sustained for years, if not decades.
More than ten years ago, Nu’s founders realized that the Latin American banking sector was ready for new competition. At the time, the banking sector was largely consolidated, with minimal innovation, despite the advent of new technologies such as the internet and smartphones.
What the company decided to do was another break with tradition, at least for a Latin American financial services company. Instead of opening a bunch of physical locations, Nu went directly to consumers through a smartphone app. While this was quite common in more developed markets at the time, the strategy was entirely unique in Latin America.
By offering its services directly through a smartphone, Nu was able to reduce costs for most conventional financial services, such as debit and credit cards, bank and checking accounts, and basic investment accounts. This reduction in fees and ease of access allowed it to grow quickly.
But this strategy had another major advantage: Now could innovate much faster than the competition. At the touch of a button, it can activate a new product or service for millions of customers.
It was clear that these factors were popular with the people of Latin America. The company went from zero customers to 109 million in its most recent quarter. And with more than 650 million residents across Latin America, the company has plenty of room for long-term growth.
Now has become a growth machine and the stock price has consistently risen as a result of that reality. But even growth superstars like these temporarily go on sale.
In recent weeks, shares have fallen in value by almost 25%. What was the cause? In mid-November, the company reported blockbuster results. But revenue growth was below historical norms, while some profitability metrics were compressed.
Then this week an analyst from Citi Group lowered its rating on Nu shares to a sell from neutral with a price target of $11, down from $14.60. While the analyst noted Nu’s “impressive ability” to grow, he thought the latest run-up was a profit-taking opportunity.
There’s no doubt that stocks were expensive in mid-November, when they hit an all-time high. Now trading at more than 10 times sales and more than 40 times earnings. That’s a high price for a bank share.
But these are no ordinary bank stocks; this is a fintech company that can grow quickly with impressive economies of scale. For example, the company didn’t become profitable until 2023, and its shares are already trading at just 33 times earnings after the correction. Over time, shares trade at less than 28 times expected earnings.
NOW PS ratio, data from YCharts. PS = price/sales; PE = price/profit.
Did Nu’s valuation get a bit out of hand last month? Maybe. But this is a company built for the next century, not just the next few years. Getting a small discount on a great company that can continue to grow for the rest of your life is an opportunity too good to pass up.
Analysts are often concerned about short-term price movements. But long-term investors should use these short-term moves to their advantage.
Nu’ Holdings’ last quarter was not at its usual level, but macroeconomically everything is still moving in the right direction. While the latest correction may have been justified in the short term, don’t expect the reduction to last throughout the holiday; This is too good a bargain to pass up for patient investors.
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See 3 “Double Down” Stocks »
*Stock Advisor returns December 2, 2024
Citigroup is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
1 Great Fintech Stocks to Buy Before December 25 was originally published by The Motley Fool
