Analysts Are Bullish on NU Stock. Should Investors Buy?


NU stock - Analysts Are Bullish on NU Stock. Should Investors Buy?

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After listing in December 2021 and trading at highs of $12.24, Nu Holdings (NYSE:NU) stock has been trending lower. Analysts however remain bullish on the digital financial services platform with presence in Brazil, Mexico and Columbia.

Recently, MoffettNathanson analyst Eugene Simuni assigned a price target of $11 for the Latin American digital bank. Eugene is bullish on this “pure-play” from high-growth developing markets.

Furthermore, 17 analysts have a 12-month median price target of $11.50 for NU stock. This would imply an upside potential of 54.2% from current levels.

In all probability, it seems the stock is close to bottoming out. The company’s high-growth and presence in markets with ample saturation are the key upside catalysts.

It’s important to mention here that financial technology companies have witnessed a correction in the last few months. Even with strong fundamentals, NU stock has drifted lower with sector sentiments. Global X FinTech Thematic ETF (NASDAQ:FINX) has corrected by 17% in the last three-months.

From a financial perspective, Nu Holdings reported revenue growth of 224% in fourth-quarter 2021 on a year-on-year basis. There are multiple reasons to believe that healthy growth will sustain.

First and foremost, the company is expanding into new geographies. The company’s customer growth in Mexico has been stellar at 1,243% on a YOY basis. Overall, the company believes that the total addressable market in Latin American is $269 billion. With focus on under-penetrated markets, Nu Holdings is positioned for healthy growth.

Furthermore, the company has been active on the acquisition front. In 2021, Nu closed three acquisitions with another acquisition to be completed in 2022. With these acquisitions, the company is expanding into adjacent sectors and increasing market share. As an example, Nu Holdings acquired Easynvest in 2021, the largest independent digital investment platform in Brazil.

As of December 2021, Nu reported cash and equivalents of $2.7 billion. Therefore, there is ample financial flexibility to pursue aggressive organic and acquisition driven growth.

Another positive catalyst for NU stock is operating leverage with strong growth. The company has already reported break-even on the adjusted net income level. As EBITDA margin improves, the stock is likely to trend higher.

Overall, NU stock looks poised for a reversal as healthy growth sustains. Even for the long-term, the stock is an attractive financial technology play from the emerging markets.

On the date of publication, Faisal Humayun did not hold (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 Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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