Many hypergrowth stocks stumbled this year as the Trump administration's unpredictable tariffs sparked fresh fears of a recession and drove people back toward more conservative investments. However, investors who can look past those near-term headwinds should be taking the contrarian view and shopping around for some long-term winners.
One of those potential winners is Nu Holdings(NYSE: NU), more commonly known as Nubank. It's the largest digital bank in Latin America and one of the fastest-growing fintech companies in the world, but its stock has declined more than 20% over the past six months.
Nubank's shares might remain volatile this year as tariffs, trade conflicts, and interest rate swings rattle the markets, but starting a $1,000 position in this hypergrowth stock today could be a smart move for five simple reasons.
Image source: Getty Images.
1. It's growing like a weed
Nubank is based in Brazil and also serves customers in Mexico and Colombia. Its "neobank" model of exclusively providing online banking services allowed it to expand at a much faster rate than the region's traditional brick-and-mortar banks.
From 2021 to 2024, its number of year-end customers more than tripled from 33.3 million to 114.2 million. Its year-end activity rate (its active customers divided by total customers) increased from 76% to 83%. During those three years, its revenue rose at a compound annual growth rate (CAGR) of 89% in U.S. dollar terms.
That robust growth was driven by the simplicity of its platform and the expansion of its fintech ecosystem with more checking and debit, credit card, lending, insurance, investment, cryptocurrency, e-commerce, and business-oriented services.
2. Its profits are soaring
From 2021 to 2024, NuBank's monthly average cost to serve per active customer stayed flat at $0.80, while its gross margin expanded from 36% to 46%. That disciplined spending indicates that Nu isn't sacrificing its margins to gain new customers. Nu turned profitable on a generally accepted accounting principles (GAAP) basis in 2023, and its GAAP earnings per share (EPS) rose 30% in 2024. It's also streamlining its expenses with more AI-powered analytics tools, automation services, and customer service chatbots.
3. Its market is still fertile
Approximately 122 million people in Latin America, or 26% of the region's population, were still unbanked in 2021, according to the World Bank's latest data. The FDIC estimates that just 4.5% of the U.S. population was unbanked that same year.
Therefore, Nu could gain tens of millions of new users over the next few years if it remains the region's top neobank and keeps expanding. That scale and stickiness could prevent its smaller competitors from gaining much ground.
4. It looks cheap relative to its growth potential
From 2024 to 2027, analysts expect Nu's revenue to grow at a CAGR of 32% as its EPS increases at a CAGR of 27%. Those are incredible growth rates for a stock that trades at just 21 times forward earnings and less than 4 times this year's sales.
Nu's valuations are likely being compressed by concerns about inflation, slumping currencies, and other political and economic headwinds in Latin America. The uncertain outlook for tariffs and interest rate swings in the U.S. is exacerbating that pressure.
But if you expect those headwinds to dissipate, it might be the perfect time to buy Nu's stock. It's only trading about a dollar above its initial public offering (IPO) price of $9 as of this writing -- and it could head a lot higher once investors rotate back toward growth stocks.
5. Buffett still holds a big stake in Nu
Warren Buffett's Berkshire Hathaway bought 107 million shares of Nu during its IPO, but it sold 67 million of those shares in the second half of 2024 as part of its massive rotation toward cash and short-term Treasuries.
That might seem like a bright red flag, but Berkshire Hathaway still holds 40 million shares worth just over $400 million as of this writing. Therefore, Berkshire was merely wiping up some of the froth in a bubbly market as Nu's stock traded between $13 to $15 -- but I think it looks a lot more compelling at $9 to $10 today.
Investors should dollar-cost average into this volatile stock
As a hypergrowth fintech stock, Nu's stock could remain volatile in this choppy market. Therefore, it's not a good idea to go all-in on this stock in a single transaction. Instead, investors should nibble on this stock in smaller increments -- like recurring $1,000 purchases -- and let dollar-cost averaging smooth out their long-term returns.
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Leo Sun has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
