NU's Six Months Consolidation: Should You Buy, Hold, or Sell?

Core Insights - Nu Holdings Ltd. (NU) stock has been consolidating over the past six months, contrasting with the industry's 25% growth [1] Company Performance - NU onboarded 4.3 million new customers in Q1 2025, reaching a total of 118.6 million, representing a 19% year-over-year increase [3][8] - The company has nearly 100 million monthly active users, demonstrating its ability to scale without sacrificing revenue potential [3] - Average revenue per active customer was $11.2, slightly down from $11.4 the previous year, indicating strong unit economics [4][8] - Revenues rose 19% year-over-year in Q1, driven by high engagement and diversified monetization streams, including lending and interchange fees [5] Competitive Positioning - NU's digital-first model has disrupted traditional banks in Brazil and is expanding in Mexico and Colombia, positioning itself as a regional powerhouse [6][9] - Unlike many fintechs that prioritize growth over profitability, NU effectively combines customer acquisition with financial discipline [5] Financial Metrics - NU's trailing 12-month Return on Equity (ROE) is 30.8%, significantly higher than the industry average of 11.4% [12] - The trailing 12-month Return on Invested Capital (ROIC) stands at 14.5%, well above the industry average of 3.4% [14] Valuation Concerns - NU trades at 18.62 times forward earnings, nearly double the sector's average of 9.33 times, indicating a significant valuation premium [8][18] - This premium reflects market optimism about NU's growth potential but also introduces risks related to earnings shortfalls or slower growth [18] Macroeconomic Challenges - Brazil faces an inflation rate of around 5%, higher than that of the U.S., and a weakening currency against the U.S. dollar, posing risks to profitability [19] - Persistent inflation and currency volatility in Latin America are key concerns for NU's operations [20] Strategic Outlook - Despite strong fundamentals, NU's stock has underperformed the broader industry over the past six months, suggesting a cautious approach may be warranted [20] - Long-term potential remains intact, but current price levels and macroeconomic headwinds call for patience [20]