3 Reason to Buy MercadoLibre Stock Right Now
Key Points
E-commerce growth is accelerating, and management is investing in the business to position itself as the clear leader.
The fintech business complements the e-commerce business, and the credit portfolio in Q1 increased 87% year over year.
MercadoLibre stock is trading at a three-year low on a forward price-to-earnings basis.
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MercadoLibre (NASDAQ: MELI) stock got crushed over the past few months. It's been an incredible market beater over the past few years, but its past two earnings reports haven't made the market happy. Profitability showed declines, and management explained that pressure is coming from investments that will pay off in the long term, as well as from seasonality and growth in the credit business.
Is this an opportunity to buy the stock on the dip? I say yes. Here are three reasons to buy it right now.
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1. Retail is shifting online in the markets MercadoLibre serves
Long-term investors should keep the big picture in mind. MercadoLibre is growing rapidly in an underpenetrated e-commerce market, and as the dominant player in the region, it's driving online adoption.
Image source: Getty Images.
Revenue increased 49% year over year in the first quarter, the fastest growth in four years. In Brazil, which is the largest country in Latin America, growth is accelerating, and MercadoLibre added 17 million unique active customers to its platform. Total unique active members increased 26% over last year, and gross merchandise volume was up 42%. "When your business is behaving like this, we believe the right response is not to harvest -- it is to invest," management said.
It pointed out that the average American makes 41 purchases online annually, while the average Latin American makes only seven. That puts the company in a unique position to harness this once-in-a-generation opportunity to go all in and establish itself as the unrivaled leader.
2. MercadoLibre is seeing massive opportunities in fintech
It's a similar story for the company's fintech business. This was started as an ancillary business to help underbanked customers pay for their purchases. Still, it has ballooned into a massive business with huge opportunities as digital players like MercadoLibre disrupt the financial status quo. Total payment volume increased 50% year over year in the first quarter, and monthly active users were up 29%.
While it began as a simple digital wallet, MercadoLibre has turned it into a full financial app and also offers credit cards and other credit products. The credit card portfolio increased 107% year over year in the first quarter, and the company added 2.7 million cards. The total credit portfolio increased 87% year over year in the quarter. The credit card business directly impacts marketplace growth, and having the card available drives a strong flywheel effect, boosting growth across both segments.
Management has many plans to grow this business, including opening what it expects to be the largest digital bank in both Mexico and Argentina.
3. The stock just got much cheaper
Despite strong results, the stock fell after the first-quarter report and now trades down 19% year to date. Operating income and margin fell, as did net income and margin.
At the current price, MercadoLibre stock trades at a three-year low of 24x forward one-year earnings. That's an excellent entry point for new investors or to add to your position, and patience here should pay off.
Should you buy stock in MercadoLibre right now?
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Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.
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