Any investors shopping around for new growth stocks right now probably haven't considered MercadoLibre(NASDAQ: MELI). In fact, there's a good chance you've never even heard of the company.
Don't let a lack of familiarity prevent you from plugging into this compelling stock pick. It's got tons of upside potential -- it's just capitalizing on its opportunity outside of your immediate circle of awareness. See, MercadoLibre's market is Latin America. It's often referred to as the Amazon of Latin America, in fact, and rightfully so in more ways than one.
Reasons to buy MercadoLibre stock
While the comparison to Amazon is a fair one, it's also incomplete. In addition to operating an online mall open to third-party merchants, the company also facilitates online auctions akin to eBay's, lets brands manage their own online store like Shopify, and even facilitates online and offline payments in the same vein as PayPal. Right now its top markets are Brazil, Argentina, and Mexico, although it operates in some form in several others. Of course, the company is also always looking for ways to expand its reach.
Whatever it's doing wherever it's doing it, it's working. The company's first-quarter revenue was up 30% year over year, lifted by a currency-neutral 86% improvement in total payments it handled and a comparable 71% increase in the amount of goods it sold. This growth extends long-standing trends too.
Data source: StockAnalysis.com. Chart by author.
This continued forward progress, however, isn't the crux of the reason you may want to own a stake in the company sooner than later. It's just the result of the bigger and more important bullish factors at work here. Three of them stand out among the rest.
1. Latin America's broadband industry is still putting down roots
In many ways Latin America is where North America was 20 years ago. That is, while the internet isn't exactly new, broadband connectivity is just now becoming commonplace. Although up a little last year, Standard & Poor's reports that still less than 60% of Latin America's homes enjoy access to high-speed wired internet. The other 40%-plus have yet to subscribe to fixed-line broadband, but many of these residents eventually will.
That said, the region's consumers are more likely to embrace their mobile devices as their primary broadband connection to the rest of the world. To this end, market research outfit GSMA suggests only 65% of the continent's people are currently users of smartphone-driven mobile internet, although this penetration rate is expected to reach 72% by 2030.
2. The region's e-commerce market is exploding
This expanding connectivity of course sets the stage for more online shopping, as well as the use of smartphones as a digital wallet. The industry is already seeing it happen, in fact. Americas Market Intelligence predicts Latin America's e-commerce industry is set to grow to the tune of 24% this year before growing 21% next year and then another 21% the year after that.
Brazil, Mexico, Colombia, and Argentina are the region's top e-commerce markets right now, by the way, further playing right into the hand MercadoLibre is holding.
3. MercadoLibre is already a (if not the) market leader
Last but not least, buy MercadoLibre stock because the company's already a leading name in both of its core business lines: e-commerce and payments.
It's an idea that requires some discussion. Namely, know that unlike Amazon in North America, Latin America's markets are highly fragmented with a large number of competing names.
For perspective, while DBS Bank estimates MercadoLibre facilitates 68% of Argentina's e-commerce, it only handles 14% of Mexico's. Meanwhile, although Brazil is its biggest market, MercadoLibre isn't that nation's top fintech company. It's second, although it is the biggest payment player in Mexico even though that's not a major market for MercadoLibre's e-commerce business. Point being, MercadoLibre is not a dominant name in the sense that most U.S. investors understand the idea.
Nevertheless, in the aggregate MercadoLibre is a powerhouse payment and e-commerce company. It's ranked as Latin America's single-biggest e-commerce company even with a modest overall share, and with roughly 50 million users of its banking and payment app MercadoLibre is standing with the region's biggest dedicated online banking names like Nu and PagBank, which boast 100 million and 30 million customers, respectively.
Already being an established, well-known name, MercadoLibre stands to capture at least a significant share of whatever online banking and payment user growth is in Latin America's future.
Not for everyone
Impressed? You should be. This company is succeeding at doing things right in the right place at the right time.
That being said, MercadoLibre may not be a fit for everyone's portfolio.
Why? With MercadoLibre headquartered and operating overseas, it could be tough to find timely information on the company. There's also a great deal of extreme currency volatility in and around its key markets, which can make it tough to forecast the company's quarterly results. Never even mind the political turmoil that seems to be rattling select pockets of Latin America right now. All of this means you'll want to keep regular tabs on MercadoLibre's story, and its stock.
If you don't mind monitoring your portfolio's holdings closely in exchange for above-average growth prospects, though, this is an often-overlooked stock worth diving into. Just don't tarry if that's your plan. Shares are a little lethargic right now, but that could change with even just the slightest hint of refreshed economic strength and stability.
Should you invest $1,000 in MercadoLibre right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, MercadoLibre, PagSeguro Digital, PayPal, and Shopify. The Motley Fool recommends Nu Holdings and eBay and recommends the following options: short July 2024 $52.50 calls on eBay and short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
