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1 growth stock with 20% decline, buy now

Leading e-commerce provider in Latin America MercadoLibre (NASDAQ: MELI) is a mystery. The broader stock market is near all-time highs, but this stock is down about 20% since its peak. What’s going on?

There is no obvious problem with the company. Sometimes the stock market behaves irrationally and we have to take that at face value.

However, investors don’t have to sit idly by while such an excellent growth stock trades at a discount. I had to double-check the fundamentals to make sure I hadn’t missed anything and found an excellent company trading at bargain prices.

For this reason, investors should look specifically for MercadoLibre shares today.

When consumer needs and quality solutions come together

Latin America is a region with a huge (but economically underdeveloped) population of 670 million people. Many people lack vital modern amenities that others take for granted, such as e-commerce and basic banking services.

About 70% of them do not have access to a bank/savings account or are underserved, meaning they cannot access credit or other complementary products and services.

MercadoLibre has been working to solve these problems since its founding in 1999, and has gone largely unnoticed. It started with e-commerce and gradually built fulfillment centers and delivery networks. Building these physical assets takes money and time, and they help create a competitive advantage.

MercadoLibre also has a fintech company called Mercado Pago, which offers its users access to numerous financial services such as digital payments, digital wallets and basic banking.

Providing solutions to these consumer problems has led to excellent long-term growth:

MELI sales chart (TTM)MELI sales chart (TTM)

MELI sales chart (TTM)

The pandemic has helped accelerate the migration of consumers to e-commerce and fintech, which has fueled MercadoLibre’s growth. Revenue has multiplied since 2020, so investors need to know if the company still has room to grow. The answer: You bet it does.

There is plenty of room for expansion

The opportunity in Latin America is so great that it’s hard to imagine growth slowing down anytime soon. In the first quarter of this year, MercadoLibre had 53.5 million unique e-commerce shoppers and 49 million fintech users – a fraction of the total population in its market area. And growth could come from several sources.

MercadoLibre will naturally grow as more people use its e-commerce and fintech products and services. E-commerce could become an increasingly large share of total consumer spending, as is the case in the US.

On the fintech side, money flow is expected to increase as the Latin American economy develops and consumers have more income and willingness to borrow or invest.

Analysts are very optimistic about the company’s long-term prospects, expecting total revenue to grow 34% year-on-year to over $19 billion in 2024. MercadoLibre is estimated to double its revenue to over $39 billion by 2028 – excellent growth for such a large company.

Stocks have rarely been so attractive

The fundamentals point to a very bright future for the company. But for some reason, the stock is not enjoying a similar sentiment. If you measure the company’s value relative to its sales, the stock is cheaper than it has ever been outside of the 2008-2009 financial crisis. But MercadoLibre was a much smaller and far less proven company years ago.

It is a mystery why the stock is valued so low today, despite the explosive growth in sales and profits over the past four years and the likelihood that solid growth will lead to higher prices in the coming years.

MELI EV to Sales ChartMELI EV to Sales Chart

MELI EV to Sales Chart

The stock would double in value if it simply returned to its average valuation over the last decade, but I wouldn’t go so far as to demand that.

Still, it gives investors at least an idea of ​​how undervalued MercadoLibre appears today and the potential margin of safety they can enjoy by owning the stock at this price level.

Should you invest $1,000 in MercadoLibre now?

Before you buy MercadoLibre shares, consider the following:

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Justin Pope does not own any stocks mentioned. The Motley Fool owns and recommends MercadoLibre. The Motley Fool has a disclosure policy.

1 Growth Stock Down 20%, Buy Now was originally published by The Motley Fool

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