Nu Holdings: Buy, Sell, or Hold?

Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) is a top business that investors follow. That's because its longtime chief executive officer, Warren Buffett, has a fantastic track record of allocating capital for the conglomerate.

Berkshire also owns many stocks in its public equities portfolio that can give the average investor potential ideas to choose from. There's one company called Nu Holdings (NYSE:NU) that might fly under the radar. Berkshire's stake in Nu is worth $1.3 billion.

Investors looking to gain exposure to the fintech sector should certainly keep this business on their radars. But is Nu stock a buy, sell, or hold right now?

Mixing tech and finance

Nu Holdings is a digital-only bank that offers a wide range of financial products and services. Customers can open checking and savings accounts, sign up for a credit card, apply for personal loans, and even set up a brokerage account.

By not opening and running brick-and-mortar bank branches, Nu is similar to SoFi Technologies. However, Nu is exclusively focused on the Latin American market, with operations in Brazil, Mexico, and Colombia. Key to the company's success has been a strategy of utilizing technology to provide consumers with a better banking experience than legacy banks. According to the executive team, Nu is the largest digital bank outside of Asia.

If you look through Berkshire's dozens of stock holdings, you'll quickly realize that Buffett appreciates businesses that possess some sort of economic moat. One of Berkshire's biggest holdings is Bank of America. I think that like this money-center financial institution, Nu benefits from switching costs. Once customers begin using and getting familiar with the company's products and mobile app, they become reluctant to leave, a scenario that protects Nu's competitive position.

Strong growth and profits

In roughly one decade, Nu has become a large enterprise, with a whopping $57 billion market cap. Key to this rise has been tremendous growth. The company raked in $2.7 billion in revenue in the first quarter of 2024. That figure was up 64% year over year. And Nu currently has 100 million customers, a monster fourfold expansion compared to Q1 2020.

Banks are in a favorable position because they can gain lifelong customers that use more and more products and services over time. This strategy of cross-selling and better monetization is working well for Nu. The company reported average revenue per active customer of $11.40 in Q1, up 30% from $8.60 just one year ago.

There's reason to believe the growth trajectory will continue for a long time. In Latin America, it is estimated that 70% of the population is unbanked or underbanked, according to Latin America Reports. As these emerging economies continue to develop, and smartphones and the internet become more prevalent, Nu should be able to benefit from this backdrop by adding more customers and increasing revenue.

Cheap or expensive?

Nu shares went public in December 2021 at $9. As of this writing, they're 32% higher. But since the start of 2023, they have nearly tripled amid bullish sentiment.

Today, the stock can be bought for a forward price-to-earnings ratio of about 28. Some critical observers might view this as a lot to pay for a banking entity. That might be enough of a reason for investors to sell their Nu holdings. Another reason that I can think of is if they're sitting on a huge gain and want to take some profits that can be reinvested into another opportunity.

However, I believe investors who appreciate a good growth story and that want international exposure in their portfolios should consider buying the stock. Viewed in this light, the valuation isn't too steep right now. Consequently, Nu might be a smart business to hold onto if you are currently a shareholder that thinks this way.

Should you invest $1,000 in Nu Holdings right now?

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.