Why MercadoLibre Stock Has More Upside than AMZN or BABA - Cabot Wealth Network

Why MercadoLibre Stock Has More Upside than AMZN or BABA

MercadoLibre stock

MELI stock is an e-commerce giant that dominates its country much like Amazon and Alibaba. Lately, it’s been trading at a potential discount…

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 $68 billion and the stock is coming off of a significant recent correction due to a secondary offering in November at $1,550 per share.

Why consider MercadoLibre after the recent price action? For many of the same reasons you might consider Amazon.com (AMZN) and Alibaba (BABA). 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.

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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 EPS to reach $2.40 this year, and then explode to $6.84 next year. It’s possible those expectations are actually modest: The company reported $1.92 in EPS in its most recent quarter, blowing analyst estimates of $1.31 out of the water.

MercadoLibre Stock vs. AMZN vs. BABA

To be sure, the valuation is through the roof, as MELI trades at 131 times forward earnings estimates. But MELI stock has been expensive for a while, and these are some of the lowest multiples it’s traded at in the last few years. Plus, it was trading at more than 3,000 times forward estimates before it reported those blowout second- and third-quarter earnings.

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 760%.

MELI has outperformed both AMZN and BABA stock over a five-year period (although AMZN has outperformed this year) 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 could outperform AMZN and BABA, though the sky-high valuation is a bit concerning, and the beta (1.47) is significantly higher than those other two stocks. MercadoLibre is down 18% year to date, though it may have found it’s footing after the recent offering. You could buy it here, if you believe in the company’s coming profit boom and aren’t too concerned about the valuation, or wait for more evidence that the bottom is in (such as a cross over the moving averages).

MercadoLibre stock chart

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?

Chris Preston

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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.

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*This post has been updated from an original version, published in 2020.

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