On Thursday, UBS maintained its Buy rating on NYSE:NU, the stock of Nu Holdings, also known as Nubank, with a steady price target of $13.50. The financial institution's first quarter of 2024 showed a mix of performances in its loan segments, with an overall increase in non-performing loan (NPL) ratios.
Nu Holdings reported a rise in its NPL ratio by 20 basis points quarter-over-quarter to 6.3%, while the stage 3 ratio, indicating loans with the highest likelihood of default, also increased by 35 basis points to 7.1%. Credit card loans experienced a higher stage 3 ratio increase of 44 basis points to 8.1%, contrasting with a 30 basis point decrease to 6.0% for personal loans. This decrease followed a significant uptick in the previous quarter.
The early NPL ratio, which tracks loans 15 to 90 days overdue, saw a substantial spike of 90 basis points to 5.0%, reversing the trend of consistent contraction in past quarters. The formation of NPL and stage 3 also saw increases of 30 basis points each, reaching 3.3% and 3.7%, respectively.
Furthermore, Nubank's cost of risk, a measure of the potential for financial losses due to credit risk, escalated notably to 16.3% from 12.8% in the fourth quarter of 2023. While Nu Holdings did not disclose further details on renegotiated loans as it had in the previous quarter, management indicated that the proportion of these loans remained at similar levels of around 10% of the total balance in the first quarter of 2024.
InvestingPro Insights
As UBS maintains a positive outlook on Nu Holdings with a 'Buy' rating, it's interesting to note that the company is trading near its 52-week high, with a price of $12.09, which is 95.2% of this peak. This aligns with the strong performance over the past year, as reflected by a 98.2% one-year price total return. Such metrics suggest investor confidence in the company's growth prospects.
From an earnings perspective, Nu Holdings is expected to be profitable this year, with analysts having revised their earnings upwards for the upcoming period. Although the company trades at a high earnings multiple with a P/E ratio of 46.5, its revenue growth is impressive, boasting a 92.43% increase over the last twelve months as of Q1 2024. This substantial growth, coupled with a high gross profit margin of 100%, underlines the company's strong operational efficiency.
For investors looking for more in-depth analysis, there are additional InvestingPro Tips available on the platform. These tips could provide valuable insights into Nu Holdings' financial health and future performance. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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