Companies capable of hypergrowth often see their stock prices bid up to outrageous levels. Often, however, shares remain a bargain compared to their long-term potential. Those willing to stomach the high upfront premium can be heavily rewarded if they remain patient.
Even after rising more than 100% since I first pointed out how cheap the shares were, my favorite hypergrowth stock still looks like a bargain compared to its long term potential. Let’s take a closer look.
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Since the year began, I’ve been writing frequently about Nu Holdings (NYSE: NU). Warren Buffett purchased shares for this holding company when the company went public in 2021, and I noticed he had lost hundreds of millions of dollars on this investment over the years that followed. At the time of Nu’s initial public offering (IPO), shares traded at roughly $10. One year after the IPO, they were valued at less than $5.
Buffett isn’t often wrong about companies, so I decided to take a closer look. What I found amazed me. Not only was Nu one of the fastest-growing companies I’d looked at in years, but its potential growth trajectory was truly impressive.
Let’s back up a bit to review what exactly Nu does. Many readers have never heard of the company before today, and for good reason — Nu operates exclusively in Brazil, Mexico, and Colombia. So unless you live in one of those countries, or just happened to have come across Nu in your stock investment research, it’s likely you know very little about this amazing business.
At its core, Nu is a fintech company. That means it operates in the financial sector, known for its massive addressable markets — but also that it, in actuality, operates more like a technology company, capable of growth rates most financial businesses would be enviable of.
When the company was founded in 2016, its primary goal was to disrupt Latin America’s old-school banking industry. At the time, the financial sector was dominated by a handful of incumbent banks operating out of physical branches. Nu turned the industry upside down by offering its services directly through a smartphone. This approach allowed it to scale rapidly, pushing new financial services to customers at the touch of a button while reducing overhead costs, with part of those savings passed along to its customers.
Nu’s growth has been impressive. Over the past decade, it has gone from essentially zero customers to more than 100 million. More than half of all Brazilian adults are now Nu customers. The company’s growth runway in Mexico and Colombia is much longer than in Brazil, Nu’s first and oldest market. And with more than 650 million residents living across more than a dozen other Latin American countries, Nu’s long-term growth is likely just getting started.
