Is MercadoLibre Stock Cheap?

Is MercadoLibre Stock Cheap? The NASDAQ Composite Index includes companies from a variety of sectors, but it is best known for its tech listings.

Technology stocks make up half the total index, compared to just 28 percent of the S&P 500. As a result, when tech stocks lost favor with investors in 2022, the NASDAQ was particularly hard-hit. Year-to-date, the NASDAQ is down nearly 30 percent, while the S&P 500 is down less than 18 percent.

The sudden, dramatic decline in tech stocks resulted from a combination of factors. Runaway inflation, rising interest rates, and rumors of recession made high-risk growth companies less appealing. Shareholders traded in tech stocks for safer industries, including energy, consumer staples, and healthcare.

When investors have a low tolerance for risk, transitioning portfolios from growth stocks to more reliable alternatives makes sense. But that isn’t necessarily the best way to generate long-term returns. The best way to build wealth over time can be summarized with this famous Warren Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”

In other words, now is the time to take a closer look at tech stocks. After the 2022 selloff, many are available at bargain prices. It may be an ideal opportunity to “be greedy when others are fearful.”

With that in mind, will MELI stock go up? Is MercadoLibre stock cheap? And, bottom line, is MercadoLibre stock a buy?

Will MELI Stock Go Up?

MercadoLibre is often referred to as Latin America’s Amazon, and it is true that the two companies have a lot in common. Based in Buenos Aires, Argentina, MercadoLibre is just five years younger than Amazon. It is a major player in Latin American e-commerce, particularly in Argentina, Brazil, and Mexico, and it controls 20 percent of the region’s e-commerce market.

When MercadoLibre launched in 1999, it was a platform for buyers and sellers to connect. It started by introducing individuals to each other, then quickly expanded into merchant storefronts.

As more Latin American consumers gained internet access, e-commerce grew in popularity. In the third quarter of 2022, MercadoLibre facilitated the sale of 284 million items valued at $8.6 billion.

Some analysts believe that the company might have grown as quickly as Amazon but for one missing piece. Unlike US consumers, a majority of Latin Americans are unbanked. They don’t have access to digital payment solutions.

MercadoLibre set out to solve that problem with a financial services division called MercadoPago. The idea caught on right away, and the company enrolled 31.6 million active users by the third quarter of 2021. Now, a year later, there are 41.6 million active MercadoPago users, and third quarter 2022 revenue from the fintech division was up 115 percent year-over-year.

Other key figures from MercadoLibre’s third-quarter earnings report include a 45 percent year-over-year increase in revenue to $2.69 billion and a 36 percent increase in net income, which totaled $129 million ($2.56 per share).

MercadoLibre has plenty of room to expand its e-commerce business deep into underserved Latin American countries, and that practically guarantees growth. However, e-commerce isn’t the company’s biggest growth driver. MercadoPago is still in its infancy, with a massive addressable market for fintech products and services.

If the company continues to deliver innovative e-commerce and fintech solutions, chances are high that MELI stock will go up.

Is MercadoLibre Stock Cheap?

Even Warren Buffett doesn’t buy overpriced stock, no matter how strong a company appears or how bright its future looks. The most effective way to generate large returns over time is to buy high-quality companies at bargain prices.

MercadoLibre stock is down approximately 28 percent year-to-date, which is similar to the Nasdaq as a whole. For context, Amazon stock has lost more than 42 percent of its value since the beginning of 2022.

So, is MercadoLibre stock cheap? The short answer is yes, despite its high price-to-earnings ratio of around 180. (Amazon trades at a P/E ratio of 90.) However, the company only recently became profitable, so this figure is a bit misleading.

A better measure of MercadoLibre’s value is the price-to-sales ratio, which is currently less than five. The last time MercadoLibre stock traded at a P/S ratio below five was 2008 – and share prices have gone up more than 100 times in the 14 years since.

It’s not likely that MercadoLibre stock will achieve another hundredfold gain in the next 14 years (though it’s not out of the question), but the stock does appear poised to go up. Those who buy MELI stock now will benefit from today’s bargain price.

Is MercadoLibre Stock A Buy?

Analysts overwhelmingly agree that MercadoLibre stock is a buy. For the past three quarters, the company has performed slightly better than the consensus price targets, and it appears likely to pull off the same sort of win for the fourth quarter of 2022.

Analysts’ 12-month price targets range from a low of $800 per share to a high of $1,650 per share. The average, $1,275 per share, wouldn’t get MELI stock back to its 52-week high of $1,642 per share, but it would be excellent progress towards a full recovery, with new highs to follow.

Remember, MercadoLibre and the MercadoPago division aren’t faced with pulling market share away from e-commerce and fintech competitors. They are offering in-demand services that haven’t been available to most Latin Americans until recently. MercadoLibre’s user base represents just 13 percent of the Latin American population, and most of the remaining consumers aren’t on competing platforms. They aren’t using e-commerce (or fintech) at all. At least, not yet.

As a well-known and trusted brand, MercadoLibre is perfectly positioned to acquire new customers and broaden relationships with existing users. More importantly, it won’t incur excessive marketing and other new customer acquisition expenses to do so. That’s good news for profitability, which makes MercadoLibre stock a buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.