1 Reason to Buy and Hold MercadoLibre Stock for the Next 10 Years
Key Points
MercadoLibre has an attractive ecosystem of services across online shopping, payments, and shipping.
The company's financial services users become regular customers on its e-commerce marketplace.
The stock is trading at its lowest valuation in years.
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MercadoLibre (NASDAQ: MELI) has been a rewarding growth stock, up about 1,500% over the last decade. It continues to grow rapidly, as it still has tremendous opportunities to expand across a large region.
The reason to buy and hold the stock is the company's powerful growth flywheel. MercadoLibre attracts customers with a vast selection and free shipping on its marketplace. It deepens engagement with fintech offerings, such as digital payments and credit cards, that offer frequent shoppers special perks. This creates a loyal customer base, and it's why the stock can be a rewarding investment.
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A key driver is Mercado Pago, which has 78 million monthly active users. Many customers depend on MercadoLibre for everyday financial needs, such as payments and credit cards. In the fourth quarter, the company's credit portfolio grew 90% year over year. Credit card rewards can be used on MercadoLibre's marketplace, keeping the growth flywheel going by building an even larger base of frequent shoppers.
As high-margin services like fintech products grow, they generate profits that can be reinvested into better customer experiences -- including faster delivery and free shipping offers that encourage more purchases. For the company's largest market, Brazil, investments in value-enhancing initiatives contributed to a 35% year-over-year increase (on a constant-currency basis) in gross merchandise volume (GMV) in the fourth quarter.
This positive cycle of growth, reinvestment, and more value added to the customer experience can deliver compounding growth for investors for years to come. The best part is that MercadoLibre's stock is trading at its lowest price-to-sales ratio in years, currently around 3. This is a significant discount to its five-year average sales multiple of 6.8, making it a compelling buy.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.
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