It’s rare to find high-quality growth stocks on sale. But that looks to be the case with Nu Holdings (NU -2.71%). Most investors haven’t heard of this stock, given that it operates exclusively in Latin America. But if you’re looking to add sizable long-term growth potential to your portfolio at a discount, this could be your best opportunity of 2025.
Nu Holdings is a very promising growth stock
Nu is one of the fastest-growing financial services businesses on the planet. However, it only operates in three countries: Brazil, Colombia, and Mexico.
The company’s business strategy is simple: Offer financial services directly to customers through a smartphone app. While less unique in the United States, this approach took the Latin American market by storm in 2013 when it was first introduced. At the time, incumbent banks operated mostly through physical branches that were costly to maintain. These costs were passed on to customers, resulting in high fees for relatively simple services.
“At first, the competition failed to take Nubank seriously; they didn’t understand the deep technological work involved in the backend of the deceptively simple user experience, and thought the company was nothing more than an app,” writes Doug Leone, a partner at Sequoia Capital, which invested early in the company. “But customers did notice how that work made their lives easier, and a waiting list began that continues to this day.”
NU Revenue (TTM) data by YCharts
Nu’s biggest days of growth are likely behind it. Brazil is the largest country in Latin America, Nu’s region of focus. Already, more than half of Brazilian adults are Nu customers, limiting potential growth there. Mexico and Colombia — the two countries that Nu entered next — are also on the larger and richer side when measuring per capita. That means future growth will rely on smaller, less wealthy nations. Still, analysts expect sales to grow by nearly 80% this year. And as we’ll soon see, the valuation is simply too cheap to ignore despite long-term growth headwinds.
Image source: Getty Images.
This valuation is too cheap to ignore
Most growth stocks like Nu are priced at a heavy premium. Yet Nu stock is trading at just 29.8 times earnings. That’s a profitable company growing sales by nearly 80% annually! Looking ahead, shares trade at just 22.6 times forward earnings — roughly the same valuation as the S&P 500.
Why is Nu stock so cheap despite the massive expected growth?
NU PE Ratio data by YCharts
As mentioned, Nu does face long-term growth headwinds. Competition should heat up, given its rampant success. Other fintech companies will attempt to replicate its services at a discount, digging into Nu’s sales growth and profitability.
But even with long-term competitive and growth pressures, Nu stock is simply too cheap to ignore. Shares trade in line with the market on a forward basis despite incredibly superior fundamentals. Don’t expect shares to remain under $15 for long. Even if a rebound is delayed, long-term investors should be very happy with locking in today’s discounted valuation.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
