Ever heard of Nu Holdings (NYSE: NU)? It would be a bit surprising if you have. Although the company’s made something of a splash among a few opportunity seekers, the average U.S. consumer isn’t familiar with it. And for good reason.
That’s because ithe company doesn’t do business in U.S. See, Nu is an online banking name only serving Latin America.
For domestic investors willing to own stakes in foreign companies though, this one’s a great choice. It could even be a millionaire maker.
As the old axiom reminds, timing is everything. While there’s never a bad time to own a good stock, there’s a great time to own certain stocks. The time to own Nu is now.
Simply put, in many ways where Latin America is now is where North America was 20 years ago.
Cell phones weren’t exactly uncommon at the time, but the iPhone hadn’t yet kicked off a revolutionary movement. Even if you owned a coveted BlackBerry then, mobile web-connection speeds weren’t exactly impressive. And believe it or not, there were still more U.S. households using dial-up connections than broadband at the time. The rise of pocket-sized connected computers and the entertainment, information, and functionality they offer has all happened in just the past couple of decades.
That’s not to suggest Latin America’s adoption of such technologies is identical to ours. Broadband, as well as mobile broadband, has been available there for nearly as long as it’s been offered here.
It’s only just now becoming ubiquitous, though, as it becomes affordable. No more than 60% of the continent’s residents currently have access to fixed broadband service (versus between 80% and 90% in most parts of the developed world), while market research outfit GSMA estimates only about two-thirds of the region’s consumers are users of mobile internet options. Both are well up from levels seen just a couple of years ago, though.
Perhaps just as important, both figures are still growing.
As was the case here, South America’s consumers are falling in love with their convenient connectivity, and now are clamoring for more ways to utilize it. Online banking — mobile banking in particular — is an obvious choice. To this end, Mordor Intelligence believes Latin America’s online banking market is on pace to be worth $2.1 billion this year, en route to $3.3 billion by 2029.
Nu Holdings is arguably positioned better than any other outfit to capture more than its fair share of this growth.
That’s what last quarter’s results suggest anyway. During the three-month stretch ended in June, Nu turned $2.8 billion worth of revenue into net income of $562 million. Earnings more than doubled on year-over-year top-line growth of 65%, with deposit growth almost reaching revenue’s growth pace. The quarter’s growth also closely mirrored the previous quarter’s forward progress.
NU Revenue (Quarterly) data by YCharts
Why, you might ask? The most plausible answer is also the correct one: The region’s consumers are embracing what Nu brings to the table, and choosing it. Based on data collected by AMU Analysis, Americas Market Intelligence reports Nu is Brazil’s single-biggest online bank. That’s roughly one-fourth of the market. It’s likely doing similarly well in other markets where its service is available.
The crux of the argument for owning a piece of Nu Holdings, however, isn’t where it’s doing well, but where it isn’t doing anything at all — at least not yet. At this time, Nu only operates in Brazil, Mexico, and Colombia, serving 105 million different customers. That’s only a fraction of Latin America’s population of 660 million people, though, the remainder of which are prospective customers if-and-when the online banking company decides to expand its reach.
And it most definitely is expanding. It only entered Mexico last year with basic bank deposits, and is still adding features and options (like personal loans) to its service there. As of August, the company boasted 8 million customers and $3.3 billion worth of deposits in Mexico.
Meanwhile, it’s widening its offerings in Colombia and Brazil with credit cards, insurance, and investing services. Analysts expect growth though geographic expansion and additional offerings to persist for the foreseeable future, too.
Data source: StockAnalysis.com. Chart by author.
The kicker: Unlike so many companies of this ilk and age, as the chart illustrates, Nu Holdings is profitable, and increasingly so.
There is risk here, to be clear, although it’s rooted in volatility more than the potential for failure. That’s why Nu still isn’t an ideal foundational sort of holding for most people’s portfolios. The fact that the shares are priced in line with analysts’ average price target of $14.46 also dings the bullish argument.
Don’t sweat these related downsides too much, though. This is a case where analysts could raise their collective targets based on the company’s continued growth, rather than the stock being led higher by a rising target price. This company is also best suited for the aggressive-growth sliver of your holdings.
More to the point, this is one of those cases where a stock’s story — for the time being anyway — is arguably more important than its valuation or the company’s results. The online bank’s business is set to nearly double in size in just a few years, with earnings apt to grow even more. And that will still only scratch the surface of its millionaire-making potential.
The key, of course, is simply sticking with it long enough for Nu to reach that full potential.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
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