Financial services are one of Warren Buffett’s favorite sectors. Its investment vehicle, Berkshire Hathawayowns a number of insurance and banking shares.
Another leading investor, Cathie Wood, also owns a number of financial services stocks through her Exchange Traded Funds (ETFs). A rare position that Wood and Buffett share is a fintech company called Now Holdings (NYSE: NOW).
Recently I was looking at some 13F filings and discovered that another well-known Wall Street titan, Israel Englander of Millennium Management, bought 30.9 million shares of Nu Holdings last quarter, increasing the hedge fund’s holdings by 370%.
If you’re not familiar with Nu Holdings, you might want to put it on your radar. Let’s take a look at what makes this emerging financial services company so attractive, and explore whether this is a good opportunity to join the ranks of Buffett, Wood and Englander.
What does Nu Holdings do?
At its core, Nu is a banking platform. The company offers a variety of services including credit cards, loans, insurance and investments, all made easy through the company’s online platform.
Simple enough, right? Well, there’s actually a little more to the image.
While Nu can be seen as a commoditized company offering the same range of products as other larger established players in the industry, there is one big differentiator at play here. Now one important geographical region absolutely dominates: Latin America.
Why Now could be a lucrative opportunity
Financial services and online banking may seem second nature to many people. However, many areas of the world have not yet fully integrated these services and technology into everyday life.
In Latin America, digital banking is still an emerging product. According to a recent study by the Inter-American Development Bank (IDB), the number of fintech startups in Latin America and the Caribbean has increased by 340% over the past six years. Brazil, Mexico and Colombia are responsible for most of this growth in the region.
These trends have certainly given Nu a tailwind. At the end of the second quarter of 2018, Nu had approximately 5 million customers on its platform. As of the end of the second quarter of 2024, the company has grown more than twentyfold to 105 million customers.
As the company continues to acquire more customers, Nu should be able to strengthen the economic performance of its unit by selling additional products and services, further increasing average revenue per user (ARPU).
With revenue growth of over 50% on a consistent basis, a gross profit margin of over 40% and a consistently positive net income, Nu shows an impressive financial profile across the board and I don’t see that slowing down anytime soon.
Is Nu a good stock to buy now?
At the time of writing this article, Nu is trading at a price-to-earnings ratio (P/E) of 23.8.
To put this into perspective, Nu’s price-to-earnings ratio is trading significantly lower than other emerging fintechs such as SoFi technologies or Upstart – both of which compete in much more saturated markets. Moreover, the average price-earnings ratio of the S&P500 is 23 – almost identical to Nu’s. I’d wager that most companies in the S&P 500 aren’t showing revenue growth of between 50% and 60% on a consistent basis while simultaneously increasing their profit margins.
For me, Nu is very often overlooked and can be mistaken as ‘just another bank’. Financial services has a long runway in Latin America, and given Nu’s meteoric rise in the region, I find it hard to believe that the company’s penetration will be disrupted by another player anytime soon.
I think the stock could easily become a multibagger for long-term investors and consider Englander’s latest purchase a smart move.
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Adam Spatacco has positions in SoFi Technologies. The Motley Fool holds positions in and recommends Berkshire Hathaway and Upstart. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Billionaire Israel Englander just bought 30.9 million shares of this little-known stock from Warren Buffett and Cathie Wood. Time to buy? was originally published by The Motley Fool
