Nu Holdings Stock: Buy Signal or Bubble Trouble in 2025?

Digital banking disruptor Nu Holdings just shattered expectations—again. The Brazilian fintech powerhouse keeps eating traditional banks' lunch while Wall Street scrambles to adjust price targets.

Breaking Down the Bull Case

Nu's mobile-first approach bypasses brick-and-mortar overhead, passing savings directly to customers. Their user growth charts look like a crypto bull run—straight up and leaving incumbents in the dust. The platform's sticky ecosystem locks in engagement while cross-selling margins expand.

Regulatory Tailwinds or Headwinds?

Latin America's financial modernization wave plays right into Nu's hands. But increased scrutiny could squeeze short-term profitability—because nothing makes regulators happier than successful disruptors.

The Verdict: Growth Versus Valuation

Sure, traditional analysts will whine about P/E ratios while missing the digital transformation forest for the accounting trees. But Nu's execution speaks louder than spreadsheet jockeys' concerns. The real question isn't if you should buy—it's how much you can stomach before the next earnings explosion.

Image source: Getty Images.

It's rapidly adding new customers

Investors might not look at banking as an industry with lots of high-growth opportunities. Online-only bank Nu proves that this is a flawed assumption. The business is posting remarkable gains, which clearly demonstrate just how popular these products and services are with customers.

In the most recent quarter, the company posted year-over-year revenue growth of 29%. Its top-line figure of $3.7 billion was an astonishing 208% more than in the same period three years ago. The consensus view among sell-side analysts is that its revenue will rise at a compound annual rate of 30.7% between 2024 and 2027.

That revenue growth has largely been powered by the growth of its customer base. Nu now has 123 million customers in total, with 107 million of those in its home country of Brazil. But it's already seeing remarkable adoption in its newer markets of Mexico and Colombia. It's likely to enter additional markets in the future.

Nu is also benefiting from good timing -- it's riding a wave of widening broadband and smartphone access across Latin America, which makes it easier for people to access digital financial services. And the region has huge unbanked and underbanked populations. That presents a large opportunity for Nu.

Look at the bottom line

When a company is growing its top line by leaps and bounds like Nu is, you might expect that its management isn't really focused yet on the bottom line. During the early expansion stages, bringing in new customers to reach scale and boosting revenues is key. Generating net income is an afterthought.

Again, Nu stands out. Its profits are skyrocketing. Net income increased 31% year over year in Q2. And its net profit margin has trended upward in recent years. This is the sign of a business that's scaling up in a lucrative manner. The consensus view among analysts following the bank is that earnings per share will increase at an annualized pace of 38% from 2024 to 2027, faster than its expected top-line growth.

Nu doesn't operate physical bank branches. Since it thus avoids a lot of costly overhead, it can direct more cash toward product development or marketing efforts while also growing its bottom line. 

The company's unit economics are worth highlighting. Nu collected $12.20 in monthly average revenue per active customer (ARPAC) during the second quarter. That was significantly more than its $0.80 cost per customer to serve them. Given the bank's ability to cross-sell more of its products and services to its established customers, its ARPAC could keep rising.

Still a worthy opportunity

After a stock has tripled in three years, like Nu has, it WOULD be natural for an investor to wonder if they had missed their opportunity to buy it profitably. It can be difficult to envision the stock continuing its ascent at anything like its prior pace in the years ahead. Yet given Nu's impressive fundamental performance, investors should at least keep tabs on it. Strong financial gains could drive the shares higher.

Moreover, based on the current valuation, now actually looks like a good time to buy the stock. Shares trade at a forward price-to-earnings ratio of 19.6. For comparison, thetrades at a forward P/E of about 21.6. Nu's share price growth is likely to slow down from its fairly torrid recent pace, but the stock is still well positioned to beat the market over the next five years.