Companies capable of hypergrowth often see their stock prices rise to outrageous levels. However, stocks often remain a bargain compared to their long-term potential. Those willing to accept the high upfront premium can be heavily rewarded if they remain patient.
Even after rising more than 100% since I first pointed out how cheap the stock was, my favorite hyper-growth stock still looks like a bargain compared to its long-term potential. Let’s take a closer look.
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I have been writing about it regularly since the beginning of the year Now Holdings (NYSE: NOW). Warren Buffett bought shares for this holding company when the company went public in 2021, and I noticed that he had lost hundreds of millions of dollars on this investment in the years that followed. At the time of Nu’s initial public offering (IPO), its shares were trading at around $10. A year after the IPO, they were valued at less than $5.
Buffett doesn’t often get it wrong when it comes to companies, so I decided to take a closer look. What I found surprised me. Not only was Nu one of the fastest growing companies I had looked at in years, but its potential growth trajectory was truly impressive.
Let’s go back for a moment and look at what exactly Nu does. Many readers have never heard of the company, and for good reason: Now operates exclusively in Brazil, Mexico and Colombia. So unless you live in one of those countries, or have come across Nu by chance during your stock investment research, you probably know very little about this great company.
At its core, Nu is a fintech company. That means it operates in the financial sector, which is known for its vast addressable markets, but also that it actually operates more like a technology company, capable of growth rates that would be enviable to most financial companies.
When the company was founded in 2016, its main goal was to disrupt the outdated banking sector in Latin America. At the time, the financial sector was dominated by a handful of established banks operating from physical branches. Now it turned the industry on its head by offering its services directly through a smartphone. This approach made it possible to scale quickly, bringing new financial services to customers at the touch of a button while reducing overhead costs, passing on some of those savings to customers.
Nu’s growth is impressive. Over the past ten years, the number of customers has gone from virtually zero to more than 100 million. More than half of all Brazilian adults are now Nu customers. The company’s growth trajectory in Mexico and Colombia is much longer than in Brazil, Nu’s first and oldest market. And with over 650 million residents in more than a dozen other Latin American countries, Nu’s long-term growth is likely just beginning.
