Do Analysts Care About Nu (NU)’s Elevated Valuation?

Nu may be overvalued with poor growth indicators, but the 17 analysts following the company give it an average rating of buy. The analysts have set target prices ranging from $3.0 to $12.5 per share, for an average of $7.06. At today's price of $4.51, Nu is trading -36.12% away from its average target price, suggesting there is an analyst consensus of strong upside potential.

Nu Holdings Ltd. operates as a digital financial services platform and technology company primarily in Brazil, Mexico, and Colombia. The large-cap Finance company is headquartered in São Paulo, Brazil. Nu has not offered a regular dividend during the last year.

Nu does not have a meaningful trailing P/E ratio since its earnings per share are currently in the red. Based on its EPS guidance of 0.25, the company has a forward P/E ratio of 18.0. In comparison, the average P/E ratio for the Finance sector is 14.34. Furthermore, Nu is likely overvalued compared to its book value, since its P/B ratio of 4.3 is higher than the sector average of 1.57.

Why would analysts be giving such an overvalued stock a good rating? It's possible that analysts are looking beyond common valuation metrics. They likely put significant weight behind Nu's growth potential, as signaled by its 94.4% rate of revenue growth and capital expenditures that are growing at 157.2%. We also note the company's responsible use of debt to operate its business.