Latin America-based commerce giant MercadoLibre (NASDAQ: MELI) has taken investors on a bit of a rollercoaster ride so far in 2024 but is up by less than 5% from where it started the year. While this is certainly better than being in the red for the year, it is about 10 percentage points less than the S&P 500's year-to-date return.
Despite the underperformance, MercadoLibre 's business has actually performed quite well recently. With a price-to-sales valuation close to an all-time low, could now be a smart time to buy this leader with tons of upside potential?
MercadoLibre's recent results
The short version is that MercadoLibre's business tells a completely different story than its stock performance. Here are just a few highlights from the first quarter of 2024:
- Gross merchandise volume on the e-commerce platform soared by 71% year over year on a currency-neutral basis to $11.4 billion, 25% more items were sold on the platform, and the average buyer purchased 7.2 items, up from 6.7 a year ago.
- The MercadoPago payments platform processed over $160 billion in annualized volume, up 35% year over year (86% currency-neutral). MercadoPago has 49 million monthly active users, up 38% year over year and an acceleration from the previous growth rate.
- Mercado Credito has $4.4 billion in outstanding loans, 46% more than a year ago. Even after accounting for credit losses, the credit portfolio generates a 31.5% net interest margin that would make virtually any U.S. lender jealous.
- Overall, revenue climbed 36% year over year to $4.3 billion, and net income grew 76%. Both operating and net margins expanded on a comparable basis.
Why has the stock lagged behind the market?
To be sure, MercadoLibre hasn't exactly been a bad performer, with shares up so far in 2024 and a stellar track record of long-term gains. But as of this writing, it has underperformed the S&P 500's total return by about 10 percentage points.
Its exposure to Argentina is one big factor. To call Argentina's economy and currency unstable would be understating the situation. Inflation has been out of control, with an inflation rate of about 270% as of the latest data (that isn't a typo), and more than half of the country's population is in poverty. MercadoLibre's numbers show the impact of the instability -- Argentina's revenue declined by 22% year over year in the first quarter.
There are also widespread global recession fears, the elevated interest rate environment, and more. But Argentina is starting to show signs of a turnaround, and the headwinds impacting MercadoLibre are largely temporary in nature. Meanwhile, its business performance speaks for itself.
Is it time to buy MercadoLibre now?
Not only is MercadoLibre posting incredible business results, but it also has plenty of growth levers that aren't too apparent in the numbers just yet. The Mercado Ads advertising platform is one example, and the premium Meli+ membership program (essentially MercadoLibre's version of Amazon Prime) is another. In the core businesses, it's important to realize that much of Latin America is still in the relatively early stages of e-commerce and fintech adoption compared with the U.S.
For most of its publicly traded history, other than the 2008 financial crisis, MercadoLibre has traded at a price-to-sales multiple between 8 and 16 (long-term average of about 10.9). Despite its incredible growth, it currently trades for just 5.4 times sales. With tons of potential and rapidly expanding margins, MercadoLibre looks like an absolute bargain right now.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matt Frankel has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy .
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