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 $38 billion and the stock is in the midst of a significant correction kicked off by 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.
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 $7.68 this year, and then explode to $12.15 next year.
MercadoLibre Stock vs. AMZN vs. BABA
To be sure, the valuation is through the roof, as MELI trades at 107 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 blowout second- and third-quarter earnings last fiscal year.
MELI has outperformed both AMZN and BABA stock over a five-year period (although both have outperformed YTD) 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 (1.56) is significantly higher than those other two stocks. MercadoLibre is down 43.5% year to date, though it may have found it’s footing with the broader market. 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 (like an upside breakout above May highs).
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?
*This post has been updated from an original version, published in 2020.