Why This $10 FinTech Could Double in 2.5 Years

Legendary fund manager Peter Lynch repeatedly told folks: “Invest in what you know.”

Lynch was correct.

Said another way: “Focus your money on investments you understand.”

That was easier back in Lynch’s day … back in the 1980s, when he expertly guided the Fidelity Magellan Fund … and when he wrote the bestselling One Up On Wall Street.

I mean, you’d have an oil company …

A paper company …

A car company …

A restaurant company.

All easy to grasp.

Fast-forward 40 years … and do your best to explain:

• Endpoint protection.

• Monoclonal antibodies.

• Hyperscaler technology.

• And quantum computing.

Trouble is, in complexity there’s opportunity — and some of the single-most-sophisticated ventures dangle some of the greatest investing windfall potential.

So you need to decipher it …

Like with FinTech innovations and companies.

FinTech 101

If you break the concept into its component pieces, it gets simpler — FinTech translates to “financial technology.”

At its simplest level, fintech firms use advanced technologies to help folks use and manage their money in new and interesting ways. Fintech itself includes any software, app or technology that lets individuals or businesses understand, access or manage their money.

FinTechs help folks make payments — like with PayPal Holdings Inc. $PYPL ( ▲ 0.88% ) .

They help people buy and sell stocks — like with Robinhood Markets Inc. $HOOD ( ▲ 2.7% ) .

They allow investors to buy, sell and manage their cryptocurrencies (including Bitcoin) — which is precisely the focus of Coinbase Global Inc. $COIN ( ▲ 2.83% ) .

They allow shoppers to buy things — using newer “buy-now/pay-later” technology — as with Adyen NV (ADYEY).

And financial technologies — the abilities they provide and the services they let companies offer — are also tucked deep within bigger companies, including credit-card companies Mastercard Inc. $MA ( ▼ 0.37% )  and Intuit Inc. $INTU ( ▲ 1.51% ), whose arsenal includes TurboTax and QuickBooks.

I created a list of 10 high-profile FinTechs — which you can access here.

But there are three more — not on this list — that I like a lot … enough, in fact, for you to research further.

Two we’ve talked about and I’ll quickly review in just a bit.

The third one — Nu Holdings Ltd $NU ( ▲ 2.21% )  — we’re initiating new coverage on … so we’ll analyze it here today.

Here’s the story …

The “Nu Way”

The São Paulo, Brazil-based Nu Holdings — often also referred to as Nubank — is a digital financial-services firm that operates mostly in Latin America, including Brazil, Colombia and Mexico.

Nubank’s offerings include:

One bullish truth that bodes well for Nu is that the company caters to a part of the world that’s got a big group of folks who are “underbanked” and “unbanked” — meaning those folks don’t have easy access to banks or the services they offer.

Brazil is a great example of what’s possible, however: More than half of Brazil’s adults are now Nu customers. Now it wants to do the same with other countries in Latin America.

The growth has been massive: Revenue zoomed from $612 million in 2019 to $11.5 billion last year — a 1,782% increase during that five-year stretch. For 2024, that worked out to $2 billion in net income — and a net profit margin of 17%.

On a year-over-year basis, sales were up 43% and profits 91.4% from 2023.

The “math” of Nu’s business model is kind of stunning: During the fourth quarter, it cost 80 cents a month to serve each customer; but each of its “active” customers generated $10.70 during that same stretch.

I like what I see going forward: Over the next five years, sales are projected to grow at an average annual clip of 25%, while profits will surge an-even faster 30%.

At that rate, profits would double in less than 2½ years. Stock prices tend to follow profit growth, meaning Nu’s shares — now at $10.40 — could be at $21 or better in less than three.

Nu’s forward Price/Earnings (P/E) Ratio is 18.45 — meaning the stock is trading at a cheaper valuation of the S&P 500’s 19.73.

This is also a Warren Buffett stock.

Buffett’s “investing vehicle” — Berkshire Hathaway Inc. (BRK.B) — owned more than 107 million shares at one point. And though it’s sold off some of those holdings, Berkshire still held about 40.2 million shares, according to the most-recent data available.

There are risks, however, which is why we see this as a classic “Accumulate” stock.

The Latin America market is more fractured than its northern counterpart. So it’s more-susceptible to risk, volatility and recent inflationary pressures. Just a few years back, according to one report, it lost about $365 million.

QUICK SUMMARY

That brings us to those other two FinTechs I mentioned.

The first is SoFi Technologies Inc. $SOFI ( ▲ 4.63% ) .

The second is MercadoLibre Inc. $MELI ( ▲ 0.95% ) .

To review: Three FinTech stocks to look at now …

Nu Holdings Ltd.

SoFi Technologies Inc.

MercadoLibre Inc.

See you next time;