NU Stock Isn’t in the Right Place At the Right Time

Nu Holdings (NYSE:NU) stock is still very early in its existence having undergone its IPO in December. It is generally very difficult to judge any company in the post-IPO period. That is true of Nu Holdings as well.

NU stock Nubank Card in front of laptop with stock panel
Source: xm4thx / Shutterstock.com

The Brazilian fintech firm raised nearly $2.8 billion from its dual listing on the New York Stock Exchange and Brazil markets. It also had a strong Q4 earnings release as well. 

That would lead investors to perhaps assume that NU stock might be trading above IPO levels of $10.33. But that isn’t the case as share prices are 33% lower than they were at the Dec. 10 IPO. By that simple metric NU stock has not been a success. 

Earnings Report

Nu Holdings’ fourth-quarter earnings release on Feb. 22 is a bit of a mystery. By most measures, the company did quite well. The company doesn’t seem to be having any trouble increasing its customer base. 

Between the end of 2020 and the end of 2021 its customer count increased 61.86%, from 33.3 million to 53.9 million. The year prior it ended with growth that reached 65.6% during the same period. So it’s difficult to see why investors have punished it thus far based on that metric.

Revenue growth has been strong, but uneven. That may be contributing to current trepidation on behalf of investors. On the one hand, Nu Holdings’ Q4 performance was very strong compared with the quarter from a year earlier. Revenues more than tripled, rising 214% to reach $635.9 million. That’s very strong indeed. 

However, the story isn’t so linear on a year-by-year basis. Revenue increased by 91% in 2019, then only grew by 20.4% in 2020, only to surge by 130% in 2021. Predictability is important for investors. That volatile growth makes it very hard to discern where Nu Holdings is headed. 

Environment Doesn’t Help

It’s also important to note that Nu Holdings has posted losses in each of those three years. The firm posted a $165.3 million loss this year. The positive news is that the loss was slightly less than the $166 million loss it posted in 2020. But the bad news is that Nu Holdings is a growth firm, and growth firms aren’t in season right now.

The Fed is trying to control inflation and will likely be raising interest rates throughout 2022. That has meant that fintech companies like Nu Holdings are less attractive than they were months ago. 

Value is in, growth is out. That’s what happens when easy money becomes less plentiful. On top of that, Nu Holdings undertook its IPO when the markets were at very high levels. Jumping into a stock when it’s already high is often a great way to lose money. 

Is Nu Dead?

No, it’s too early to make any assertion that NU stock is dead by any means. It has some powerful forces behind it. The company is backed by well-known technology investors including Sequoia Capital and Tencent (OTCMKTS:TCEHY) among others. Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is also invested in the company. 

Further, it’s simply too early to tell much about Nu Holdings right now. Judging the direction of an IPO is very difficult. There are no market precedents by which to gauge sentiment. 

What to Do With NU Stock

I see a few key issues with Nu Holdings. It has become a publicly traded entity at a difficult time. There is little reason to believe the market will bolster a fintech IPO in this environment. 

Then there’s the issue of uneven revenue growth. The market will need to see more predictability from NU stock before its price can move upward. That’ll be a problem even after growth stocks return to fashion.

Fintech firms were hot, but that’s not the case anymore. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


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