MELI stock is an e-commerce giant that dominates its country much like Amazon and Alibaba. Lately, it’s been outperforming them both…
We don’t typically cover Argentina stocks, and with good reason. After all, there are only 17 Argentina ADRs (American Depositary Receipts) that trade on major U.S. stock exchanges, and most of them are either very small, wildly underperforming—or both. MercadoLibre stock is neither of those things.
MercadoLibre (MELI) is an Argentine e-commerce company with a market cap of $73 billion and the stock is on an upward trend.
Why is MercadoLibre doing so well? For many of the same reasons Amazon.com (AMZN) and Alibaba (BABA) have. It’s an e-commerce giant that dominates the country in which it is headquartered. Actually, MercadoLibre dominates an entire continent, with the largest e-commerce and payments ecosystem in all of Latin America. MercadoLibre has a presence in 18 countries, including Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. In each of those countries, it’s the market leader in terms of unique visitors and page views.
Bypass the Coronavirus…with this hidden gem at the heart of “the biggest investment boom in history”
Operating revenue increased over 70%.
Gross profit surged 122%.
Net income was up over 60%.
With both an online merchandising and a growing digital payments business, MercadoLibre is almost a hybrid between Amazon and eBay (EBAY) or PayPal (PYPL). As Argentina, and South America as a whole, waited out the virus at home like most of the rest of the world, business picked up for MercadoLibre the way it did for Amazon and Alibaba.
Though the company has struggled to maintain profitability (much like Amazon did in its early days), that’s about to change: analysts expect for EPS to reach 3 cents a share this year and then explode to $4.30 next year.
MercadoLibre Stock vs. AMZN vs. BABA
To be sure, the valuation is through the roof, as MELI trades at 3,000+ times forward earnings estimates. But MELI stock has been expensive for a while, and that hasn’t stopped it from rising.
Argentina’s benchmark stock market index, the Merval, has more than tripled the returns in the S&P in the last five years, but MercadoLibre stock still has nearly tripled it, up a jaw-dropping 955%.
MELI is rising faster than both AMZN and BABA stock, and its business has way more upside: according to Statista, only about 5.5% of retail sales in Latin America were online in 2020, compared to 36% in China and 11% in the U.S. The market in which MercadoLibre operates is relatively untapped, despite the immense sales growth in recent years.
Thus, it’s reasonable to think MercadoLibre stock will continue to outperform AMZN and BABA, though the sky-high valuation is a bit concerning, and the beta (1.48) is a touch higher than those other two stocks. It’s currently in a pullback from its all-time highs at the beginning of the year, down more than 11% year to date. But it appears to have bottomed more than a month ago, and has inched its way back near its 50- and 200-day moving averages. You could buy it here, if you believe in the company’s coming profit boom and aren’t too concerned about the valuation.
MELI is essentially a higher-risk, higher-reward version of Amazon or Alibaba. For the more adventurous investor, it’s worth adding to your portfolio.
Do you invest in MercadoLibre stock? Why or why not?
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version, published in 2020.