This stock has great potential, and there are at least five reasons to buy it today.
There are few stocks on the market today that offer a comparable opportunity to MercadoLibre (MELI 0.95%). The company has a great business, lots of growth drivers, and the price is perfect. Here are 5 reasons to buy today.
1. E-commerce is not yet widespread in Latin America
MercadoLibre’s core business is e-commerce. It is highly profitable and provides funds for the company to venture into a fast-growing business. That said, the e-commerce business itself is still growing at a healthy pace. Total merchandise volume in the second quarter increased 20% and 82% on a currency-neutral basis compared to the same period a year ago, and items sold increased 29%. That’s a typical quarter.
Management is still investing in the e-commerce segment, adding new features and programs to onboard suppliers to attract new members, improve logistics and delivery times, and offer more products to generate higher sales and It creates engagement.
However, it is the organic growth associated with the growth of e-commerce in the region that is creating the most opportunities. MercadoLibre is well-positioned to gain market share and maintain high growth rates as e-commerce penetration continues to rise in Latin America, where it remains low compared to many other regions.
2. Fintech is still in its infancy
Fintech is a similar story, but offers even greater opportunities. MercadoLibre has developed a strong fintech segment born out of the need for its cash-dependent customer base to pay for goods without using credit cards. It has expanded into a full-service digital financial app offering credit products, investment accounts, digital payments, and more.
This segment is growing even faster than e-commerce, with total payments increasing 36% year-over-year and 86% currency-neutral in the second quarter. The credit portfolio has been an incredible way for MercadoLibre to maximize profits, with net interest margin of 31.1% last quarter.
Digital financial services continue to gain ground in Latin American markets, with high penetration rates in some large countries but still low penetration in many smaller countries.
3. High profitability
MercadoLibre has been investing cautiously to grow its business, and while profitability has been volatile for a while, it has been steadily profitable in recent quarters with increasing net income.
Argentina is feeling some pressure from the region’s very high inflation, but this is offset by the strong performance of other countries. Net income more than doubled to $531 million in the second quarter, and net profit margin widened from 7.3% to 10.5%.
4. Entering banking business
MercadoLibre has a growing fintech business but lacked a banking charter to give it more flexibility in the financial services it could offer. The company applied for a banking license in Mexico in May, positioning itself to become the country’s largest fully digital bank.
Starting in Mexico, the user base has grown five times over the past two years. However, this is a pilot and could have a major impact on the future of business, with incredible new opportunities to disrupt traditional banking in many countries in which we operate. It may be opened.
5. The price is fair
MercadoLibre stock has long traded at a four-digit price, a fair valuation given its performance and opportunity. The company’s expected price-to-earnings ratio (PER) is 42 times, and its price-to-sales ratio of 6 times is well below the five-year average of 10 times.
MercadoLibre has incredible growth opportunities, and if you buy now, you can expect benefits for years or even decades.
