Nu's 46% Rally Tests Valuation Amid Growth Surge and Unseen Credit Risks

What happened

Nu Holdings' stock has surged 46% over the past six months, fueled by scaling operations in Brazil, Mexico, and Colombia alongside rising profitability metrics. However, the latest DeepValue master report reveals that at $17.52, Nu trades at 33x earnings and 8x book, already pricing in aggressive 20-30% revenue growth and near-30% ROE assumptions. The report highlights critical vulnerabilities, including a heavy reliance on unsecured consumer credit in Brazil's high-interest-rate environment and the risk of 90+ day NPLs exceeding 8% under stress. Despite the price momentum, the analysis maintains a WAIT rating with an attractive entry at $14, arguing that current levels offer minimal margin of safety against macro and credit-cycle headwinds. This disconnect underscores a brewing debate between optimistic growth narratives and the sobering reality of overvaluation and latent financial risks.

Implication

The rapid price appreciation has compressed Nu's valuation to levels that discount near-perfect execution, leaving little room for error if growth slows or asset quality deteriorates. With ROE sustained above 28% contingent on stable NPLs, any uptick in delinquencies—especially in newer markets like Mexico and Colombia—could swiftly erode profitability and trigger multiple compression. Expansion efforts, while driving top-line gains, introduce additional regulatory and execution risks that are not adequately priced in, amplifying downside potential. Given the base case implied value of $18.50 and bear scenario target of $11, upside from current prices is limited compared to the significant drawdown risk in a downturn. Therefore, disciplined investors should monitor quarterly credit metrics closely and only consider adding exposure on dips that reflect a more reasonable risk-reward balance, as outlined in the $14 entry point.

Thesis delta

The investment thesis remains unchanged: Nu is overvalued at current prices, and the recent surge does not mitigate the core risks of credit cycles and Latin American macro volatility. If anything, it reinforces the need for patience, as buying now would overpay for growth already embedded in the stock. A shift to a more bullish stance would require evidence of sustained 30%+ revenue growth with stable NPLs and ROE above 28%, which has not materialized despite the price run-up.