Nu Holdings (NU) Delivers Booming Growth, But Is the Stock Too Hot to Handle?

Nu Holdings (NU) is now one of the largest fintechs in the world, with nearly 120 million customers, most of them active, and deep penetration in Brazil, where it serves over half the adult population. Its model is simple: acquire customers cheaply, offer credit strategically, and monetize without letting defaults hurt profitability. The results have been impressive, with strong growth in both book value and earnings, and a stock price that’s jumped over 250% in the last three years.

Still, there are limits. The growth story remains strong, with more room to scale in Brazil and across Latin America, but the current valuation looks stretched. For a fintech still in growth mode and exposed to macro risks in emerging markets, there’s little margin of safety.

The interesting thing is how Nu got here and what challenges lie ahead. All things considered, when looking at Nu’s investment proposition in relation to its current valuation, I can only remain neutral on the stock (for now).

The Nu Holdings Growth Formula

According to NU stock bulls, the company’s market proposition comes down to a straightforward strategy that’s rather simple in concept but extremely difficult to execute—and yet, Nu has executed it with remarkable success. The formula goes something like this: (1) rapidly grow the customer base, multiplied by (2) increasing average revenue per active customer (ARPAC), minus (3) a low-cost operating platform, equals (4) strong earnings power.

For the first part, Nu has accomplished an impressive feat—reaching 60% of Brazil’s adult population. Most of them hold a credit card, and 83% are active users.

The second part flows naturally from the first. With a massive customer base already in place, Nu can now focus on monetization. Today, its ARPAC is $11.20 per month, with more mature customer cohorts already hitting $25.90. There’s still plenty of room to grow, especially considering that traditional banks in Brazil average about $43 per month.

The third part of the formula is all about efficiency. As a fully digital bank, Nu runs a lean operation—with no branches and a small team—so its cost to serve each customer is just 70 cents. That’s a fraction of what it costs the Brazil-based incumbent banks.

Put it all together, and the results are compelling. Over the past three years, Nu has grown revenue at a 75.9% CAGR, while book value has increased at a 22.1% CAGR. Even more impressive is that the company has consistently turned a profit, delivering a return on equity (ROE) of 27%, outpacing even the most profitable traditional banks in Brazil, such as Itaú Unibanco (ITUB) and Banco do Brasil (BDORY).

Credit and Risk Go Boom

Since Nu Holdings already serves 60% of Brazil’s adult population, the focus has shifted to boosting monetization in more mature markets. This has been pursued by expanding the range of services—from insurance and brokerage to both secured and unsecured loans. And the results are starting to show. Over the last four quarters, Nu’s total credit card portfolio grew by 23%, hitting $16.3 billion. Unsecured loans jumped 71% to $5.9 billion, and secured loans skyrocketed 302% to $1.9 billion.

This strong growth across credit lines also reflects Nu’s expansion into new geographies, especially Mexico, where the company is aggressively targeting a large share of the population. That said, rapid growth in the credit portfolio, particularly in loans, comes with risks worth monitoring.

For instance, short-term defaults (15-to-90-day non-performing loans) rose from 4.1% to 4.7% between Q4 2024 and Q1 2025. That uptick has started to eat into Nu’s margins. As a result, its risk-adjusted net interest margin (NIM) declined from 9.5% to 8.2% over the same period.

According to the management team, this is largely seasonal—linked to the holiday period in Brazil—and expected, given the fast pace of credit expansion. Still, the pressure is also showing up in the return on equity (ROE), which dipped from 30% in Q3 2024 to 29% in Q4 and then to 27% in Q1 2025, as the company took steps to rein in rising defaults.

What is the Fair Value of Nu Holdings?

Investors starting a long position in Nu Holdings today would pay around 7.3x its book value—nearly seven times higher than the average for traditional banks in Brazil.

That suggests the current multiple might be a bit stretched if nothing else. However, to get a clearer picture, it helps to look at the valuation through the Residual Income Model, which considers the current book value and the present value of all future value-added profits the company is expected to generate.

Nu Holdings’ book value per share over the last twelve months is $1.78, with a return on equity (ROE) of 27% as of Q1 2025. Using a cost of equity around 7% and a perpetual growth rate of 3% (roughly in line with Brazil’s GDP growth), the model suggests an implied fair value of about $10 per share, which is roughly 23% below its current trading price of ~$13.

Of course, for the Residual Income Model to remain valid, Nu’s ROE would need to stay stable or grow in line with book value. But based on the current metrics, there doesn’t seem to be much margin of safety in the stock price from this point of view.

Is Nu Stock a Good Buy?

Nu Holdings currently has a Moderate Buy rating based on opinions from seven Wall Street analysts who’ve covered the stock over the past three months. Five of the seven are bullish, one is neutral, and one is bearish. The average NU stock price target is $14.42, suggesting ~13% upside over the coming twelve months.

See more NU analyst ratings

NU’s Growth Potential Hits Valuation Ceiling Amid Market Risk

Nu Holdings still has a strong case for trading at a premium. Its growth story has been solid, and it’s now reaching a point where profitability can accelerate in its main market, Brazil, after achieving impressive penetration of the country’s population. However, there are concerns about defaults and macroeconomic risks, especially as Nu expands into new markets like Mexico and pushes for growth in unsecured loans.

While I believe the growth story will most likely continue, Nu Holdings’ heavy exposure to emerging markets (especially Brazil) is a risk that needs attention. The valuation looks quite stretched right now, and without a clearer margin of safety, it could be risky. Despite still being in the growth phase, Nu is already showing signs of maturity, but given the high valuation, I’m taking a more neutral stance for now.