Nu Holdings Has the Opportunity to Generate Industry-Leading Efficiency
When looking at bank stocks, an important metric that investors watch is the efficiency ratio, which looks at a bank's expenses expressed as a percentage of its revenue. So, if a bank has a 60% efficiency ratio, that means it is spending $0.60 to generate every $1 of revenue. The lower the efficiency ratio, the better.
Fintech and digital banks have a tougher time generating strong efficiency ratios because many are still in growth mode and spending heavily. This can begin to turn into a problem after a while as investors look for a clear path to profitability and lose patience.
The Brazilian digital bank Nu Holdings (NYSE: NU) has been an outlier among fintechs because it is making good progress on its efficiency ratio. In fact, the bank has the potential to generate industry-leading efficiency, as I'll explain below.
Source Fool.com
