Two investors who couldn’t be more opposite are Cathie Wood and Warren Buffett. Wood is the CEO and Chief Investment Officer of Ark Invest, a company that focuses on investments in emerging topics such as artificial intelligence (AI) or genomics. By contrast, Buffett has spent most of his tenure a Berkshire Hathaway own blue chip stocks instead of higher risk and volatile opportunities in growth sectors.

However, despite their different philosophies, Wood and Buffett have some overlaps between their respective portfolios. It’s called a company that Ark and Berkshire own Now Holdings (NYSE: NOW). Now to fintech player that focuses specifically on Latin America and South America.

Let’s explore why Nu looks particularly attractive right now from a valuation perspective, and explain why 2025 could be a breakout year for this unknown trading opportunity.

Nu is a digital financial services platform that offers its users an inclusive suite of products ranging from checking and savings accounts, investments, loans and more. For much of its history, Nu focused on markets such as Brazil, Colombia and Mexico.

However, in December the company announced it was participating in an investment round for digital banking platform Tyme Group, which has 15 million customers in South Africa and the Philippines.

At the end of the third quarter (ended September 30), Nu had 110 million members on its platform, representing 23% year-over-year growth. Additionally, the company’s average revenue per user (ARPU) gradually increased to $11 per member.

By making its customers more profitable over time, Nu has been able to expand its margins and expand profitability. In the third quarter, Nu’s gross margin increased by 300 basis points and net income rose 83% year-over-year to $553 million.

According to the chart below, Nu trades right in the middle among this set of other international fintech operations based on the price-to-sales (P/S) ratio.

While this might imply that Nu is attractively valued relative to this cohort, it’s the trend underlying the company’s P/S that stands out to me. Nu’s P/S has been steadily declining over the past few months. I think one of the main reasons for this revolves around macroeconomic conditions throughout Latin America, particularly in Brazil.

While these concerns are valid, I don’t see these dynamics as a reason to sell the stock.

One of the stocks that has struggled over the past couple of years is SoFi. SoFi is a very similar business to Nu in that it offers many of the same core financial services, all through the convenience of a mobile app.

The story continues

While SoFi has a number of different products, the company’s biggest source of revenue by a mile comes from loans. As the United States experienced abnormally high levels of inflation in recent years, the Federal Reserve resorted to some aggressive changes in monetary policy, raising borrowing costs 11 times between 2022 and 2023. These moves affected significantly SoFi’s lending operation and over an extended period. period of time that investors fled the stock.

However, the economic picture began to improve steadily and in the last months of last year the Fed began to aggressively reduce interest rates. Not surprisingly, SoFi began to witness a rapid upswing in its lending business and enthusiasm for the stock began to rise. Since the first rate cut in mid-September, SoFi shares are up more than 80%.

Concerns about inflation and its growth in SoFi’s business parallel Nu’s concern right now, given the company’s exposure and vulnerability to a challenging economic environment in Brazil. But with that said, investors should walk away and remember that economic conditions are finally starting to turn around and improve over the long term.

To me, the concerns about Nu’s short-term growth are valid. But the long-term picture still looks incredibly robust, underscored by the company’s growing user base, cross-selling opportunities, rising profits and economic expansion.

I see Nu following a similar trajectory to SoFi and think the stock is a bargain for investors with a long-term mindset.

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Adam Spatacco has positions in SoFi Technologies. The Motley Fool has positions in and recommends Adyen, Berkshire Hathaway and StoneCo. The Motley Fool recommends Nu Holdings and PagSeguro Digital. The Motley Fool has one disclosure policy.

1 Cathie Wood and Warren Buffett stocks that could turn parabolic in 2025 was originally published by The Motley Fool