My Stocks and Shares ISA became a sea of red at the beginning of this crazy April. However, history teaches us that sudden market downturns often present great buying opportunities for long-term investors.
Right now, I think a few stocks look attractive at current prices, even after the massive US market rally yesterday (9 April). Here’s one that’s worth considering, in my opinion.
Fintech disruptor
The stock in question is Nu Holdings (NYSE: NU), which is the parent company of digital bank Nubank. This name isn’t widely known outside of Latin America, yet within the region it certainly is — it has over 114m customers!
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This actually makes it the largest digital bank outside China, despite only operating in three countries (Brazil, Mexico, and Colombia). Incredibly, the company was only founded 12 years ago.
Over half of adults in Brazil now use Nubank’s app, which offers various accounts, loans, insurance, stock and crypto trading, and more. And 61% of active customers are using it as their primary bank account.
It’s disrupting the traditional banking industry in the region through innovation, low fees, and by offering a frictionless service. Oh, and by dishing out purple credit and debit cards because that was the most anti-bank colour the firm’s founders could imagine!
I had to open a bank account…when I moved to Brazil [in 2012], and it was one of the worst experiences I ever imagined, going to the branch, being trapped in this bulletproof door, being escorted by armed policemen, waiting an hour to get attended and later going back to the branch about six times, then waiting five months.
Co-founder and CEO David Vélez, in an interview with Fortune.
Attractive-looking business (and stock)
Revenue has grown tremendously in recent years, from $1.7bn in 2021 to $11.5bn last year. But this isn’t some cash-incinerating fintech — its digital-first approach is leading it to become highly profitable.
In the fourth quarter, for example, it cost Nubank $0.80 to serve each of its customers per month. Yet it generated an average of $10.70 in monthly revenue per active customer. Older customers generate around $25. This showcases the company’s strong operating leverage.
Last year, net income almost doubled to just under $2bn. And looking ahead, both revenue and earnings are expected to continue growing strongly.
| 2024 | 2025 | 2026 | 2027 | 2028 | |
| Revenue | $11.5bn | $12.5bn | $15.8bn | $19.6bn | $25.2bn |
| Earnings per share (EPS) | $0.40 | $0.55 | $0.76 | $1.05 | $1.36 |
The share price has fallen 31% since November and now sits at just under $11. Based on forecasts, this puts the stock on a forward price-to-earnings ratio of 19.7, then falling as low as 10 by 2027. These multiples look very attractive.
Massive opportunity
As far as risks go, there a couple worth pointing out. The first is that the number of non-performing loans on its books could rise if its main market, Brazil, were to suffer a recession.
Meanwhile, it faces stiff competition from MercadoLibre‘s fintech division (Mercado Pago) and the UK’s Revolut. It will have to keep innovating with ambitious rivals like that around.
Finally, Latin America is no stranger to periods to economic instability and high inflation. So this is worth bearing in mind.
On balance though, I think the stock is worth considering at $10. Many millions of people across Latin America remain either unbanked or underbanked, presenting a very large long-term growth opportunity.
