Shares of Now Holdings (NYSE: NOW) have skyrocketed to an 88% gain this year, amid strong growth and accelerated profitability at Latin America’s largest digital bank. With the stock trading at a 52-week high, expectations are building for the company’s upcoming third-quarter earnings report (for the period ending September 30), due on November 13.
Let’s discuss what to expect and whether Nu Holdings stock could be a good buy right now.
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Warren Buffett must have seen the potential of Nu Holdings then Berkshire Hathaway emerged as an investor around the time of the company’s 2021 IPO. At the time, the $1 billion investment stood out as an outlier within Berkshire’s stock portfolio, which was historically built around more mature companies from developed markets.
A lot has changed in the past three years. Berkshire Hathaway’s current position in Nu stock is valued at $1.7 billion, which equates to a 2.2% stake in the company. It is fair to say that Nu Holdings has positively surprised many people with its successful market strategy.
Nu Holdings is benefiting as customers increasingly use the platform as their primary bank account, while becoming more involved with the platform by adding new products over time.
Nu’s results this year are highlighted by its continued ability to monetize its 105 million customers, a level that has increased by 25% in the past year in countries such as Brazil, Colombia and Mexico.
In the last reported second quarter (for the period ending June 30), average revenue per active customer (ARPAC) was $11.20, up 30% on a currency-neutral basis from last year. The rapidly growing level of customer deposits and low financing costs have supported a significant increase in lending activity. Solid credit metrics drove second-quarter revenue up 65%, while adjusted net income on a currency-neutral basis more than doubled compared to the prior-year period.
Overall, Nu Holdings is on the right track and the market will want to see further momentum on these key indicators in the third quarter to reaffirm Nu’s earnings trajectory.
|
Now Holdings Stat |
Q2 2023 |
Q2 2024 |
YOY change |
|---|---|---|---|
|
Customers |
83.7 million |
104.9 million |
+25% |
|
FX neutral ARPAC |
$8.60 |
$11.20 |
+30% |
|
FX neutral turnover |
$1,728 million |
$2,849 million |
+65% |
|
FX neutral adjusted net income |
$243 million |
$563 million |
+131% |
|
FX neutral total loan portfolio |
12.7 billion |
18.9 billion |
+49% |
Data source: Now Holdings. YOU = year after year.
According to average Wall Street estimates, Nu Holdings is expected to report revenues of $2.9 billion in the third quarter, up 39% from the third quarter of 2023. The consensus is that earnings per share (EPS) in will be $0.11 in the third quarter, an increase of 57% from $0.07. result last year.
At a minimum, meeting these expectations will be important this quarter, but management’s comments on current conditions and the company’s outlook for 2025 could play a larger role in the stock market’s immediate reaction to the third quarter report . In this case, the details of the loan portfolio, including default rates and net interest margin, will be important to the extent that they confirm that the region’s macroeconomic structure remains resilient.
At a high level, Nu Holdings is well positioned to conquer the market secular tailwind of a growing consumer class in Latin America and a still large, underpenetrated banking population. There is a sense that the trends are still in the early stages of a decades-long opportunity.
These factors and the growth prospects help justify a pricey valuation for Nu Holdings shares, which currently trade at 36 times consensus full-year EPS, calculated as a forward price-to-earnings (P/E) ratio. That level represents a premium for some fintech leaders Block or PayPalcloser to a forward price-to-earnings ratio of 20, but also a discount for bank disruptors such as SoFi technologies on an even wider 85 multiple or Rocket companies at 56.
Strong third-quarter earnings from Nu Holdings could be the catalyst for a stock recovery, with some market precedents maintaining a higher valuation.
Buying stocks ahead of quarterly earnings can be tricky, as the report’s various moving parts with a layer of uncertainty can lead to a round of volatility if results disappoint. Recognizing these risks, I believe Nu Holdings stock still deserves a Buy rating with upside potential through 2025 and beyond. Investors who stay focused on the big picture over the long term should continue to be rewarded by this fast-growing market leader.
Consider the following before purchasing shares in Nu Holdings:
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway, Block, and PayPal. The Motley Fool recommends Nu Holdings and recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
Is Nu Holdings stock a buy before November 13? was originally published by The Motley Fool
