Although the share price has risen almost 2,000% over the past decade, MercadoLibre (NASDAQ: MELI) still has relatively low brand awareness in the US. Some rightly call it the Amazon of the Amazon. But for me, I call this Latin American e-commerce and digital financial services giant a no-brainer stock to buy for the long term.
MercadoLibre operates in Brazil, Mexico, Colombia and other countries in the region. According to Statista, 266 million people in Latin America had used e-commerce by the end of 2023. By 2029, that number is expected to increase by 57% to about 420 million. Adding nearly 200 million users over six years could do wonders for a platform like MercadoLibre.
The company had a substantial base of nearly 54 million active buyers (people who made at least one purchase during the quarter) in the first quarter of 2024. That was enough to make the company a leading e-commerce player in the region. But it’s not too big to grow significantly from here, especially given Statista’s forecast.
E-commerce adoption doesn’t happen in a vacuum. When transactions are digital, there is also a need for digital financial solutions (fintech). And because items need to be shipped to buyers, logistics networks are also needed. MercadoLibre also excels at delivering these things.
According to the research group Market Data Forecast, fintech in Latin America is currently only a $16 billion annual market – still relatively young. But the same researchers believe that the Latin American fintech space could be valued at $52 billion by 2029. In short, just like e-commerce, fintech growth in Latin America is exploding.
MercadoLibre is doing well with its fintech segment, Mercado Pago: 49 million people use the platform every month, and it is on track to process payment volume of more than $150 billion this year.
In terms of logistics, MercadoLibre can deliver most products ordered on its platform in two days or less, which is a major achievement in this region.
With both e-commerce and fintech services expected to grow at an incredible rate in Latin America in the coming years, MercadoLibre stock could be a no-brainer purchase as it is one of the companies best positioned to to benefit from the trend.
Two more reasons to take a closer look at MercadoLibre
I won’t name names, but I think many large-cap stocks are overvalued right now. However, MercadoLibre’s valuation is quite reasonable. At the time of writing, it is trading at less than six times current sales and almost half its average valuation over the past decade.
This valuation is reasonable considering how much growth potential the company has. Plus, profits could be about to skyrocket.
For starters, the company, like many of its e-commerce peers, is focusing on advertising – and that business is definitely taking off. In the first quarter, advertising revenue rose 64% year-on-year. Selling advertising space is usually a way for online companies to increase their profits, and that could be the case here too.
Let me give another example of MercadoLibre’s potential profit boosters: One of the company’s biggest markets is Argentina, where the economy has been held back for decades due to out-of-control inflation. But the recently elected president, Javier Milei, plans to change this, and the early results are promising. Argentina’s prospects could finally improve, and if so, it could give new impetus to MercadoLibre.
Increasing profits is not just a future ambition for MercadoLibre – it is a contemporary reality. Over the past five years, improvements in operating results have far exceeded stellar revenue growth.
The next milestone on a long highway
Only a select few companies have ever reached a market cap of $100 billion. But I fully expect MercadoLibre to be one of them within a few years. That’s not a very bold statement: the company is already valued at around $87 billion at the time of writing. To reach $100 billion, the economy would only have to grow by about 15%.
However, I don’t think $100 billion will be the high point for this company. It will be just the next milestone for MercadoLibre as it continues to deliver exceptional returns for shareholders over the long term.
Should you invest $1,000 in MercadoLibre now?
Consider the following before purchasing shares in MercadoLibre:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and MercadoLibre wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $671,728!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 28, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jon Quast has positions in MercadoLibre. The Motley Fool holds and recommends positions in Amazon and MercadoLibre. The Motley Fool has a disclosure policy.
This No-Brainer Stock Could Join the $100 Billion Club in a Few Years Originally published by The Motley Fool
