Nu Holdings stock slumps after Lula win: a golden opportunity to buy?

Nu Holdings stock is tumbling today, October 26, as investors react to the surprise outcome of Brazil’s presidential election, in which incumbent Luiz Inácio Lula da Silva defeated Flávio Bolsonaro. The shares have plunged more than 25% and hit their lowest level since June 3. Even so, the company’s fundamentals remain strong, which suggests the selloff may be an overreaction.

Nu Holdings stock drops after Lula win

Nu Holdings and other Brazilian stocks plunged today after Luiz Inácio Lula da Silva won the runoff election, catching most people offguard. The decline is mostly because markets were hoping that Bolsonaro would win and usher in a period of friendly regulations.

Still, there is a positive side for Nu Holdings. Stocks often overreact to major events such as elections, and the initial move frequently reverses. A good example is the 2016 US presidential election. Futures plunged overnight when Donald Trump won, but markets rebounded quickly, and the benchmark indices went on to hit several all-time highs.

Most notably, Lula’s win means that the policies he advocated in the last term will continue this time. And Nu Holdings has thrived under him, with the stock soaring to a record high of $18.96 a few months ago. 

Nu Holdings’ business is doing well

The other bullish aspect for Nu Holdings is that its business is firing on all cylinders. Its last earnings report suggested that its growth is accelerating across the board. Its customers jumped to 139 million from 65 million in the same period last year. This growth will likely continue as the company expands its business in other countries. 

Nu Holdings’ revenue growth is accelerating. Its gross revenue jumped to $5.9 billion in the quarter from $1.2 billion in the same period last year. Also, its net income soared to $1.06 billion from a $30 million loss a year earlier.

Analysts are optimistic about the company. The average estimate is that its third-quarter revenue jumped by 43% to $5.98 billion, with the most optimistic target being at $6.2 billion. It is expected to then make $5.98 billion in the fourth quarter, bringing the annual figure to $22 billion. Nu will likely report better number than these estimates. 

The company is also on a path to domination in Latin America. It has already gained market share in Mexico, where it has become the biggest digital bank. It is also using a low-cost approach to enter the United States. These metrics explain why analysts have maintained a bullish outlook, with the average target being $18, much higher than where it is today.

Nu Holdings stock technical analysis

Nu stock chart | Source: TradingView

The daily chart shows that the Nu stock price gapped downwards on Monday, reaching its lowest level in months. It dropped below the 50-day and 100-day moving averages, while the Supertrend turned green. 

The stock also moved below the Major S/R pivot point of the Murrey Math Lines tool. Therefore, the most likely scenario is where it bounces back, possibly to the Ultimate Resistance level of $15. 

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