Nu Holdings' Slump Continues Despite Record Profits

Nu Holdings, the parent company of digital bank Nubank, continues to struggle despite posting over $1 billion in quarterly profits. The stock has fallen 35% from its 52-week high and now trades at $12.23 per share.

The average price target on Wall Street is $18.69, which represents a 52.8% upside potential for investors. Goldman Sachs analyst Tito Labarta reiterated his Buy rating and a Street-high $23 target, implying an 88% increase in value.

However, the company's credit quality has weakened, with overdue credit card receivables rising to 12.5% from 11%. The CET1 capital ratio also fell to 11.9% from 13.0%. Additionally, taxes are putting pressure on Nu's earnings, with an effective combined Brazilian tax rate of 42.5% and new consumption taxes on financial services set to start next year.

The latest leg down was sharp, with Nu falling 10.04% in a single session and 13.02% over the week. Despite this, Goldman's $23 target is based on three pillars: Nu maintaining a return on equity above 30%, ARPAC rising as existing customers add products, and market share gains in Mexico and Colombia extending earnings growth.