Nu Holdings Continues to Slide Despite Record Profits

Nu Holdings, parent company of digital bank Nubank, continues to slide despite posting record profits in its first quarter. The stock has fallen 35.6% from its 52-week high of $18.98, and currently trades at $12.23.

Goldman Sachs analyst Tito Labarta reiterated his Buy rating and a Street-high target price of $23.00, which represents an 88% upside. However, the stock's decline has been relentless, with a 10.04% drop in a single session and 13.02% over the week.

The main cause of Nu's slide is weaker credit quality, with overdue credit card receivables rising to 12.5% from 11.0%. Stage 3 loan exposures rose to 8.3% from 6.2%, and loans more than 90 days past due increased by 35 basis points to 6.9%. Additionally, the CET1 capital ratio fell to 11.9% from 13.0%

Despite these challenges, Goldman Sachs' thesis remains intact. Labarta believes that Nu will maintain a return on equity above 30%, with low customer acquisition costs and rising ARPAC (average revenue per active customer). He also expects market share gains in Mexico and Colombia to extend earnings growth.