How would you feel if an investment of € 1,000 yielded almost 2,000% profit within ten years? Investors dream of these kinds of returns. If you can identify stocks with incredible potential and diversify your investments, you could very well own a stock that delivers such gains.
MercadoLibre (NASDAQ: MELI) shares are an example of this. If you had invested $1,000 in MercadoLibre stock ten years ago, you would have just over $20,000 today. But we’re not here to talk about the past. Let’s see if this stock can reward investors similarly in the future.
It’s not easy being a 20-bagger
MercadoLibre was relatively unknown a decade ago, especially in the US, given its focus on Latin America. It required a leap of faith and came with a lot of risk, but there was a compelling bull case for the company as a younger company Amazon with an e-commerce business in an untapped market.
Given the 20-bag return, you also had to hold the stock due to significant volatility. Even now, the stock has not yet reached the record highs of early 2021.
MercadoLibre has continued to report excellent growth over the past three years, but fell along with many stocks in the recent bear market due to its high valuation, slowing revenue growth and declining profitability. However, shares have largely recovered and are in a great position to continue rising.
Unleashing opportunities in fintech
MercadoLibre is now an e-commerce and fintech giant dominating the Latin American market. It has been reporting double-digit revenue growth for years while increasing profitability.
Fintech is currently the main growth driver. Many Latin American consumers still do not have access to financial and banking services. MercadoLibre offers easy-to-use digital alternatives, such as electronic payments and credit products. Total payment volume increased 35% year-on-year in the first quarter, or 86% on a currency-neutral basis, and the loan portfolio increased 46%.
To be clear, the company’s core e-commerce segment is still booming, with many Latin American countries reporting some of the highest e-commerce growth rates globally. MercadoLibre’s gross merchandise volume rose 20% last quarter (71% currency neutral), and is accelerating after a post-pandemic slowdown. MercadoLibre continues to expand its logistics network, which is already quite efficient. For example, orders delivered within 48 hours rose 16% year-on-year in the first quarter and represented 52% of total orders. This is still a steady growth engine.
Like Amazon, the company gets most of its revenue from its reliable e-commerce business, using it to fund new, faster-growing ventures. It’s a compelling model that creates incredible opportunities.
Can she maintain these profits?
No one can predict the future, but is it realistic to expect MercadoLibre stock to return another 2,000% over the next decade? That’s the kind of performance typically attributed to small, fast-growing companies.
Let’s see how that could happen. MercadoLibre stock has a market capitalization of $86 billion. If it grew twentyfold, it would become a $1.7 trillion company. There are only six companies today with a market cap over $1 trillion, and Amazon is one of them, by the way, with a market cap of $1.9 trillion.
If we hold MercadoLibre’s share price-to-sales ratio constant at its current level of 5.5, the company’s trailing-twelve-month sales would need to rise from $15.8 billion to around $313 billion to reach the desired market cap of $1. to reach 7 trillion. Over a ten-year period, this implies a compound annual growth rate (CAGR) of 35%, almost exactly where revenue growth occurred last quarter. That 35% CAGR is also lower than the average quarterly revenue growth of 44% that MercaoLibre has seen over the past decade.
But ultimately this is all theoretical. Growth rates can slow, valuations can change, and numerous factors can affect a company’s and stock price, especially over a ten-year period.
Whether or not it happens, MercadoLibre is capturing incredible opportunities across markets and remains an excellent growth stock to add to your portfolio.
Should you invest $1,000 in MercadoLibre now?
Consider the following before purchasing shares in MercadoLibre:
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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. Jennifer Saibil holds positions in MercadoLibre. The Motley Fool holds and recommends positions in Amazon and MercadoLibre. The Motley Fool has a disclosure policy.
This stock turned $1,000 into $20,000 in 10 years, and it’s just getting started. originally published by The Motley Fool
