What makes a stock the ultimate growth stock? In my opinion, in addition to high growth rates, it must also have long-term growth drivers, be close to or already profitable, have some protection or resilience, and not be overvalued.

Sounds too good to be true? Check out Nu Holdings (NYSE: NV). Nu is a Brazil-based digital bank that offers a wide range of financial services in three Latin American countries, appealing to a broad customer base through its low interest rates, user-friendly platform and modern technology. It offers all that and more.

High growth rates

Quarterly growth rates have been incredibly strong for Nu as the company adds new customers at a rapid pace – and those customers are highly retention-oriented. Nu added more than 5 million new customers in the second quarter, crossing the 100 million mark for the first time, bringing the total customer base to 104.5 million. Customers in its headquarters and core market of Brazil are still being added at a healthy pace, even though more than half of the adult population – 56% – is already using the platform, and retention rates are also increasing, reaching 83.4% in the quarter.

Average revenue per active user (ARPAC) increased 30% year-on-year and continues to grow sequentially, even at constant currency.

Data source: Nu Holdings.

Long-term growth drivers

The bank continues to gain market share in Brazil and is growing even faster in its newer markets of Mexico and Colombia. Mexico added 1.2 million customers in the second quarter, bringing the total to 7.8 million, while Colombia surpassed the one million mark in the same period.

Offerings in these countries are still limited, and the high-yield savings account was only recently introduced, attracting new members. Growth in the Mexican business was the main driver of deposit growth in the second quarter. Deposits there have tripled in the last two quarters since the savings account was introduced. Management says these two markets are still in their “investment phase.”

As Nu acquires more customers and launches new services, this leads to higher engagement and more cross-selling and upselling. This should keep growth rates stable for the foreseeable future.

Nearly profitable or with proof of profitability

All of this could still pose a risk if Nu fails to convert its revenues into profits. But the company has reported several consecutive quarters of strong earnings driven by stable acquisition costs and low servicing costs, which it says are 85% lower than incumbents. Increases in deposits are also driving higher net interest income (NII) and margins (NIM) in its lending business. NII rose 77% year over year in the second quarter, while NIM rose to 14% from 13%. Total net income rose 134% to $487 million in constant currency.

Nu has this kind of profitability even though its operations in Mexico and Colombia remain in the red. For a company that can grow over the long term, it’s important to have this kind of capital to grow without worrying about overall profitability. This is probably one of the reasons Warren Buffett likes this stock.

Play it safe

Buffett has spoken of diverse income streams as a feature he looks for in a stock, and Nu is expanding its platform to back up its business. It has diversified its offerings to include bank accounts, credit products and other financial services.

The high deposit growth that is driving growth in the newer markets is giving the company money to drive its lending business. Given its growing and healthy loan portfolio, the company has accepted additional risk and defaults. The total portfolio grew 49% year-on-year in the second quarter and loan originations increased 78%.

Appropriate assessment

Nu stock is trading at a price-to-earnings ratio of 23, which seems like a bargain relative to its performance and opportunities. The stock certainly seems fairly valued compared to other high-growth stocks.

Too good to be true?

So is Nu a sure-fire winner? There is still some risk as the company operates in a region with high economic volatility and is still a relatively young company. This risk is mitigated by the company’s strong risk management and stability to date.

It’s also a Buffett stock. That’s not proof of anything, but since Buffett generally avoids riskier stocks, it gives investors an idea of ​​the risk level of Nu stock. I’d say it’s minimal right now.

If you have $500 left after paying off debt and saving for an emergency, you can buy a whole lot of Nu stock while it’s still under $15. You’ll thank yourself later.

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Jennifer Saibil has positions in Nu Holdings. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.