Nu Holdings Ltd. NU delivered an impressive performance this year, with its stock surging 77% and outperforming the industry’s 35.9% growth.

NU’s success can be attributed to its strong business model, which features a well-established brand, an efficient cost structure and effective monetization strategies.

As of the latest trading session, the stock closed at $14.75, just shy of its 52-week high of $15.16. It is trading above its 50-day moving average, indicating a bullish sentiment among investors.

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In comparison, NU’s peers have not fared as well. SoFi Technologies SOFI has returned 4.7% during the same period, while Banco Santander (Brasil) S.A. BSBR has fallen 23.5%.

Given NU shares' sustained strength, investors might be in fear of missing out (FOMO) and wondering if there is still an opportunity to invest in the stock. Let’s try and address the confusion.

NU’s Scalable Model Drives Growth

NU’s business model, defined by a strong brand, efficient cost structure, and evolving monetization strategies, has proven highly effective. The company’s ability to attract and retain customers with little investment in marketing is a significant benefit. By focusing on underserved and unserved populations, it is creating a loyal customer base organically, reducing its reliance on costly marketing campaigns.

This means more of its revenues can be reinvested in growth rather than spent on acquiring new users.The capital-light and scalable nature of Nu's business model ensures that serving active customers is extremely cost-effective. Lower operational costs mean higher profit margins and better long-term financial health. This scalability also allows Nu to proliferate without needing substantial investments in infrastructure or human resources, enabling it to focus on customer satisfaction and expansion.

The company’s financial results for second-quarter fiscal 2024 underscore its growth trajectory, with revenues rising 65% year over year and adjusted net income soaring 214% from the previous year’s levels. During the quarter, NU added 5.7 million customers, bringing its global total to 105 million. The growing trend toward digitization is expected to drive NU’s expansion further.

NU Disrupts Latin America’s Banking Sector

NU established itself as a formidable and innovative force in Brazil's traditionally slow-moving banking sector. It set itself apart from the entrenched oligopoly of traditional banks by implementing a unique cost structure. Unlike legacy banks that have dominated the market for years, NU employs a digital-first strategy. This approach significantly reduces customer service costs, allowing the company to offer lower prices and fees than its competitors.

Reduced fees and an exceptional digital user experience have led to high customer satisfaction, enhancing NU’s brand reputation among Brazilian consumers. This strong brand image has, in turn, driven word-of-mouth referrals, which have become a major driver of customer acquisition for NU. As a result, the majority of Brazilian adults with bank accounts now consider NU their primary banking institution. The company is working to replicate this success in other Latin American markets, including Mexico and Colombia.

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 27% compared with the industry’s average of 9.5%.

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NU has also shown strong returns on invested capital (ROIC), with a trailing 12-month ROIC of 11.1%, well above the industry average of 4.4%.

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NU’s Promising Top and Bottom-Line Growth

The Zacks Consensus Estimate for NU’s 2024 earnings is pegged at 41 cents, indicating 70.8% growth from the year-ago level. Earnings in 2025 are expected to increase 51.8% from the prior-year actuals. The company’s sales are expected to increase 48.9% and 34% year over year, respectively, in 2024 and 2025.

Forget FOMO, Buy NU

Nu Holdings continues to demonstrate strong growth potential, making it an attractive investment opportunity. Its innovative business model, which prioritizes scalability and cost-efficiency, allows it to thrive in the traditionally rigid banking sector. NU's focus on underserved markets, combined with its minimal reliance on costly marketing campaigns, has fostered organic customer growth. This unique strategy not only enhances profitability but also positions NU for sustained expansion across Latin America.

With a solid brand reputation, exceptional customer satisfaction, and strategic penetration into new markets, NU is set to capitalize on the increasing digitization trend. Its long-term financial health, driven by lower operational costs and high returns on capital, further reinforces its growth trajectory. For investors looking for exposure to the evolving fintech landscape, the company presents a compelling opportunity for both stability and future upside. Consider adding NU to your portfolio to benefit from its ongoing success.

NU currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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