5 Things To Know About Mercadolibre Stock Before You Buy
When stocks become popular, many investors buy them without knowing much about the underlying businesses. This is understandable to some extent. When a stock is going up and people are talking about it, a natural reaction is to want to be part of the fun.
However, without knowledge about a company, it's a lot harder to know whether to hold on to a stock when times are tough. Understanding a business is key to successful long-term investing. So let's try and understand MercadoLibre (NASDAQ: MELI).
This Latin American fintech has become a popular stock -- outpacing the S&P 500 by 78 percentage points over the last five years -- thanks to impressive results. But is it worth owning now? Here are five things every investor needs to know about MercadoLibre before buying shares.
MercadoLibre has a diversified business
MeradoLibre is the leading e-commerce company in Latin America, operating in 18 countries in Central and South America. While its e-commerce marketplace is its largest segment, it has a fintech offering, as well as logistics, advertising, and other businesses.
Of these additional offerings, Mercado Pago, the fintech business, is the fastest-growing and most important segment for investors to be aware of. It represents around 42% of total revenue.
Growth has been the name of the game
The company's impressive growth rates have put MercadoLibre on the radar of many investors. Year-over-year revenue growth of at least 30% has been commonplace for this company over the past several years. In the most recently reported quarter, total revenue grew 36%, driven by commerce segment revenue growth of 49%.
MercadoLibre has also started to see this top-line growth make it further down the income statement. In Q1 of 2024, operating income increased by 26%, net income grew by 71% and the company has generated $5 billion in free cash flow over the past 12 months.
Momentum in the e-commerce marketplace
After adjusting for currency-exchange impacts, gross merchandise volume (which is the total dollar amount of goods sold) on the e-commerce marketplace platform was up 71% in Q1 of 2024. Growth was particularly strong in Brazil and Mexico, which each growing by 30% on top of 28% in Q1 of 2023.
The story was the same with total items sold, which increased by 25% in Q1, and unique active buyers, which grew by 16%. Overall, MercadoLibre continues to attract new customers who buy more over time.
Fintech engagement is impressive
Mercado Pago, the company's fintech segment, started as a way for marketplace users to pay for goods. Over time, it has grown to be a much more well-rounded banking and payment option for users.
Fintech monthly active users were up 38% in Q1. Total assets under management grew by 90% to $5.5 billion, and the credit portfolio grew by 46%.
These metrics show that Mercado Pago is quickly becoming a valuable service for customers in a part of the world where there are fewer financial products available than what U.S. investors are used to.
MercadoLibre is reasonably priced
MercadoLibre currently trades for a price-to-sales (P/S) multiple of 5.6 and a price-to-free-cash-flow (P/FCF) multiple of 17. Neither of these is particularly expensive on a comparison basis. For example, Amazon trades for 3x sales and 42x free cash flow. Additionally, MercadoLibre's valuation is cheaper than its five-year median for both P/E and P/FCF. Now looks like a good entry point for the stock.
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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. Jeff Santoro has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.
