Shareholders of Now Holdings (NYSE: NOW) struggled during the first year the company was listed on the stock exchange. But after the lows, it was a fantastic story.
This has been the case since the beginning of 2023 fintech stocks is up 243% (as of November 26). And the momentum has continued into 2024, even if it has been a fleeting journey.
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Could Buying Now Today Have a Lifetime Guarantee?
Gone are the days when consumers had to visit their local branch to sort out everything related to their monetary needs. Smartphones and the internet have changed financial services, allowing a company like Nu to offer bank accounts and credit cards digitally to consumers, among other things.
The company grew like wildfire. Now posted sales of $2.9 billion in the past three months, a figure that was 56% higher than the same period last year. The company has 110 million customers today, compared to just 48 million three years ago. Now has a strong position in its main market, Brazil, but is starting to make progress in newer countries such as Mexico and Colombia.
Investors should be optimistic about the future. According to Latin America Reports, an estimated 70% of the population in this region of the world still has little or no financial resources, presenting a huge opportunity for Now.
Nu’s revenue growth has translated into incredible profitability. Net income rose 107% year over year to $553 million in the third quarter. The profit margin has increased significantly over the past twelve months.
A sure sign of a high quality company is the presence of one economic moat. Typically, younger companies have not yet acquired sustainable competitive advantages. However, I think Nu has reached a point where it should be clear to the investment community.
As with dominant banking providers, switching costs play a prominent role. Once a consumer decides to use the financial services of a specific company, links all their different accounts together and becomes familiar with how it works, they are less likely to switch providers. A certain level of trust can be built with Nu if customers can count on it as a reliable financial partner for their daily needs.
The average Nu customer uses four different company products. And 60% use Nu as their main bank account. This proves that the company has built up a favorable position that it will benefit from for a long time to come.
Another source of moat that Nu is experiencing is cost benefits, especially as it scales up. In the last quarter, it cost the company $0.80 per month to serve the average customer, which fell year over year. As Nu grows in size and expands its revenue and customer base, it can better leverage its spend, thanks in part to its digital model.
For a stock to last a lifetime, it probably needs to generate excellent returns over an extremely long period of time, such as decades. This is difficult to predict because what happens so far into the future is unpredictable. No one could have known about that purchase Apple or NetflixFor example, 20 years ago would have resulted in truly monster profits. I think it’s best to have the same realistic and modest expectations with Nu. It is difficult to predict what will happen.
But Nu possesses some very favorable qualities, namely its market positioning, rising profits and competitive advantages, which should attract investors’ attention. The fact that the valuation is still reasonable is another reason why the stock should be considered in your own portfolio.
At the time of writing, Nu shares are trading at a price-to-earnings ratio of 32. This seems like an attractive entry point for long-term investors.
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool has positions in and recommends Apple and Netflix. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Could Buying Nu Stock Today Save You a Lifetime? was originally published by The Motley Fool
