Nu Holdings Ltd. NU has faced notable pressure recently, with its stock sliding nearly 27% over the past six months, a sharp contrast to the industry’s 6% growth.

While NU’s decline stands out, peer performance offers a mixed picture. Banco Santander (Brasil) S.A. BSBR has also faced headwinds, declining approximately 11% during the same period, reflecting broader volatility in the Latin American financial sector. On the other hand, SoFi Technologies SOFI has delivered impressive gains, surging more than 26%, driven by optimism around its expanding digital financial ecosystem.

This divergence in performance across NU’s competitors, particularly Banco Santander (Brasil) S.A. and SoFi, raises important questions about Nu’s near-term trajectory. With SoFi demonstrating resilience in the U.S. market and Banco Santander (Brasil) S.A. navigating regional challenges, investors may see the current dip in NU stock as a potential entry point. However, further analysis is needed to assess whether this pullback reflects temporary market sentiment or deeper structural concerns.

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NU: Disrupting Banking Across Latin America

As a trailblazer in the fintech industry, Nu Holdings leverages a digital-first and scalable business model to drive down operational costs while boosting efficiency. This innovative approach has positioned NU as a disruptor in traditional banking, enhancing financial inclusion and accessibility across its markets. NuBank, NU’s flagship platform, has earned recognition as one of Latin America’s most trusted and prominent brands.

In Brazil, a market dominated by traditional banking giants, NU has carved out a distinct identity with its innovative cost structure and customer-centric model. Its customer base continues to grow at an impressive pace, propelled by its digital-first strategy. The company is also making substantial strides in expanding its operations across Latin America, particularly in Mexico and Colombia, where adoption is accelerating. With opportunities to penetrate untapped regions, NU’s footprint is poised to expand further. During the fourth quarter of 2024, the company added 4.5 million customers, bringing its global customer count to 114.2 million. The increasing trend toward digitization is expected to sustain and enhance this growth trajectory.

NU’s revenue model is highly diversified, encompassing streams such as lending, interchange fees and marketplace services. This diversification not only mitigates risks but also provides stability during economic uncertainties. The company has consistently demonstrated robust revenue growth, driven by higher monetization of its platform and increased user engagement. Key areas like credit cards and personal loans have significantly contributed to its financial success. In the fourth quarter, NU reported a 24% year-over-year revenue increase.

NU’s Strong Returns on Capital

Return on equity (ROE), a measure of profitability, reflects how effectively a company uses its shareholders' investments to generate earnings. NU’s trailing 12-month ROE is 30.4% compared with the industry’s average of 11.1%.

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NU has also shown strong returns on invested capital (ROIC), with a trailing 12-month ROIC of 12.5%, well above the industry average of 3%.

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NU’s Promising Top and Bottom-Line Growth

The Zacks Consensus Estimate for NU’s 2025 earnings is pegged at 54 cents, indicating 20% growth from the year-ago level. Earnings in 2026 are expected to increase 45.7% from the prior-year actuals. The company’s sales are expected to grow 33.7% and 26.3% year over year, respectively, in 2025 and 2026.

NU Looks Pricey

NU stock appears significantly overvalued compared to industry peers, currently trading at 17.77 times forward earnings, more than double the sector's average of 8.58 times. This substantial premium reflects the market’s optimism about NU’s growth potential, driven by its innovative fintech model, expanding customer base and strong revenue trajectory. However, such a lofty valuation also introduces risks, as any shortfall in earnings or slower-than-expected growth could lead to a sharp correction.

High Prospects, But Timing is Key

Given Nu Holdings’ recent surge, the stock appears to be trading at a premium compared to industry peers. While NU’s innovative fintech model, robust customer growth and strong financial performance justify its valuation, the current price levels may limit near-term upside potential. Investors should consider holding existing positions to capitalize on long-term growth prospects, particularly as NU expands across Latin America and continues to monetize its platform. However, new investors may want to wait for a pullback or consolidation before entering, as the stock’s recent rally may have already priced in near-term optimism.

NU currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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