Nu Holdings Faces Challenges Amid Rapid Growth and Delinquencies

Nu Holdings has transformed Brazilian banking, but concerns linger. With a 29% stock decline, investors are wary about rising credit delinquencies and Berkshire's reduced stake. Is it time to buy the dip?

Date: 20-01-2025

AI Rating: 5

Firm Overview
Nu Holdings is a digital bank that has successfully disrupted the traditional banking sector in Brazil, growing its customer base significantly and penetrating new Latin American markets. However, recent concerns regarding credit issues and a decline in share price highlight the risks investors face.

Net Income Growth
Nu Holdings has achieved seven consecutive quarters of net income growth, with Q3 showing $553 million in profit, reflecting a remarkable 82% increase year over year. This consistent growth is a positive indicator for investors, enhancing the company's appeal despite market volatility.

Credit Concerns
Investors are expressing concerns regarding the company's credit quality. The percentage of non-performing loans delinquent for 90 days or more has risen to 7.2% from 6.1% the previous year, indicating a potential deterioration in credit quality. Furthermore, write-offs increased from approximately $957.6 million to $1.6 billion, which raises red flags about future loan recoveries and profitability.

Valuation Metrics
The stock currently trades at about 31 times earnings and 7 times sales, down from significantly higher ratios earlier. This indicates that the stock may have adjusted to more reasonable benchmarks, which is important for potential investors weighing entry points.

Overall Assessment
Despite facing challenges, including increased credit delinquencies, Nu Holdings' strong net income growth and the expansion into underserved markets present a unique growth opportunity. Investors should keep an eye on management's ability to navigate these issues while sustaining growth.

Stocks: NU BRK.B