Nu Holdings (NYSE: NU) posted strong Q1 2024 earnings, but its rich stock valuation may make it less attractive compared to other financial market options offering better P/E ratios and dividends.
- Nu Holdings reported impressive Q1 2024 earnings, with a net income of $378.8 million, showcasing strong growth and profitability in the digital banking sector.
- Despite the robust performance, Nu Stock may be slightly overvalued compared to peers like Itaú and Inter, which offer lower P/E.
- Even with a rich p/e and other options on the market, Nu is still an exceptional company with excellent prospects.
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Nu Holdings, one of the largest digital financial institutions in Brazil and Latin America, recently announced its first-quarter 2024 results. The market enthusiastically received these, resulting in a 4% rise in Nu stocks.
Despite the robust results and strong growth prospects, many analysts still do not consider Nubank’s shares attractive due to their high valuation. In this article, we will explore the reasons behind Nubank’s strong Q1 results and why the stock may not be as attractive as other financial market options.
Nu Holdings Had Strong Q1 Earnings
In the first quarter of 2024, Nubank reported a net income of $378.8 million, significantly surpassing the $141.8 million recorded in the same period last year. Adjusted net income was even more impressive, reaching $442.7 million compared to $182.4 million in the first three months of 2023. These results exceeded analysts’ expectations, which projected a net income of $404.8 million.
Nubank’s total credit portfolio increased to $19.6 billion, compared to $12.8 billion in the first quarter of last year. In Brazil, the non-performing loan (NPL) rate over 90 days was 6.3%, and between 15 and 90 days, the indicator was 5%, both in line with expectations and historical seasonality.
Moreover, these robust numbers were accompanied by sustained growth and customer engagement. The bank reached 100 million users in May 2024, surpassing 50% of Brazilian adults. The table below speaks for itself; alongside the astronomical growth in customers (26%), the activity rate remained very high, and the bank achieved very attractive profitability. It is worth mentioning that the company continued to grow internationally, surpassing 7 million customers in Mexico and 900,000 in Colombia.
Nubank’s CEO emphasized that operations in these new markets are in the early stages of achieving profitability but are already showing accelerated results in terms of the number of customers, deposits, revenue, and market share in credit card purchase volume compared to the same development stage in Brazil.
The quarter’s annualized return on equity (ROE) was 23%, while the adjusted ROE reached 27%. From my standpoint, this indicator reinforces the quality of the thesis. The bank not only continued to grow significantly in operational metrics but also achieved profitability above that of the big banks, which highlights how profitable and scalable the digital structure can be when executed with excellence.
Why might NuHoldings stock not be so attractive?
Even so, relative to other companies, Nubank’s shares may be less attractive, and the main reason is the price.
I believe the recent earnings speak for themselves, evidencing the quality of the company’s business model. However, much of its growth expectation is already priced into its shares. Its NTM P/E ratio is approximately 26x, which seems like a fair multiple for a company delivering such growth and quality.
However, this multiple does not seem to align with its Brazilian peers, perhaps because it is a well-known and internationally listed company that attracts a shareholder base more accustomed to growth. Given all the growth prospects and current profitability, the bank deserves a premium in its multiple, but it seems a bit high compared to Inter (INTR) and even other large banks.
Banks like Itaú Unibanco (NYSE: ITUB) and Banco do Brasil (OTCMKTS: BDORY) have much more reasonable P/E multiples. Itaú trades at approximately 7.5x 2024 earnings, offering attractive value for an already consolidated bank and providing robust dividends. Similarly, Banco do Brasil trades at around 4.2x 2024 earnings, even cheaper, justified by its state-owned risk.
For a fairer comparison with Nubank, we can consider Inter, which is also a digital bank focused on combining growth and profitability. Inter achieved an ROE close to 10% in Q1, a significant evolution for the bank. Even with expectations of reaching a similar ROE to Nubank in the future (with an aggressive and somewhat doubtful target of 30% by 2027), Inter trades at a much more attractive price, with an NTM P/E multiple of 14x, even with all the growth potential to be captured.
Conclusion
Nubank’s Q1 earnings, combined with its historical performance, highlight a robust company with a continuously growing and increasingly plausible model, having already achieved extraordinary profitability through its scalable model.
However, despite its notable performance, Nubank’s current stock valuation may make it less attractive compared to other market options. Banks like Itaú and Banco do Brasil offer lower P/E multiples and robust dividends, while Inter, another growing digital bank, presents a more attractive P/E multiple.
Therefore, as everything in the market is relative (with various options for a portfolio), Nu Holdings indeed stands out as an excellent and attractive company. Yet, investors might find other investment opportunities in Brazilian fintechs that are equally promising or even better, considering their lower valuations.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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