The major market indexes have continued to hit new highs this year, but the recent pullback is giving investors an opportunity to buy reasonably priced stocks with room to run. Let's see why three Motley Fool contributors see more upside for Amazon (NASDAQ: AMZN) , Deckers Outdoor (NYSE: DECK) , and MercadoLibre (NASDAQ: MELI) .
Amazon's profits are exploding
John Ballard (Amazon): Holding shares of companies that generate repeat business with customers makes for a truly unstoppable investment, and that makes Amazon a no-brainer.
Amazon is an essential part of millions of people's shopping routines. It's been a few years since the company updated its Prime membership numbers, but in 2021, Amazon disclosed that it had over 200 million Prime customers. That's a reasonable estimate for how many customers repeatedly shop on Amazon every year.
For a long time, Amazon prioritized spending on fulfillment center expansion rather than maximizing profits, which allowed it to speed up delivery, expand selection, and dominate the e-commerce market. But it's now starting to prioritize profitability, which is giving the stock a second wind.
Amazon's operating profit has soared over the last year, as management optimizes inventory placement. Wall Street analysts expect the company's earnings per share to increase by 58% this year before another 28% increase next year.
The company's growth opportunities in the global e-commerce market could allow its earnings to grow at double-digit rates for many years, not counting the growth opportunities with its lucrative cloud computing business.
With the stock still trading well within its historical valuation range, whether looking at price-to-sales or price-to-earnings ratios , investors should expect the stock to continue climbing along with the growth of the business.
An overlooked footwear star
Jeremy Bowman (Deckers Outdoor): You might be surprised to learn that Deckers is one of the best-performing consumer goods stocks on the market in the last five years. During that time, shares of the UGG owner have jumped nearly 500%, outperforming peers like Lululemon Athletica , Nike , and Skechers by a wide margin.
Much of its recent growth has been driven by strength in the Hoka brand, which has replaced UGG as its biggest seller. In its recent fiscal first-quarter earnings report, Hoka revenue jumped 29.7% to $545.2 million, driving overall revenue up 22% to $825 million.
Hoka has emerged as a breakout brand in running, like On Holding , taking market share from more established companies like Nike and Adidas . The brand, known for thick midsoles, has grown through a reputation for comfort and quality, expanding with new models for hiking, everyday use, and trail running, along with collaborations that have brought it to a more fashionable crowd.
Deckers has also succeeded in converting the sales boom into profits. Operating income nearly doubled in the quarter to $132.8 million, giving the company an operating margin of 16%. Those margins should continue to improve as Hoka gains more market share and the brand makes up a greater share of the company's business, as it commands a high price point.
Considering its growth potential, Deckers shares look reasonably valued at a price-to-earnings ratio of 30. If it can continue delivering strong growth, which is all the more impressive in a challenging consumer environment, look for the stock to keep marching higher.
The e-commerce powerhouse you haven't bought from
Jennifer Saibil (MercadoLibre): If you didn't get a chance to buy Amazon stock in its earlier days, you may want to look into MercadoLibre. It's an e-commerce superstar, but it serves Latin America, so you may not have used its services. However, more than 50 million people in 18 Latin American countries have, and that number continues to grow, as do volume, sales, and profits.
Not only is MercadoLibre leading in Latin American e-commerce, it also has a large and fast-growing fintech business. It calls itself the leading Latin American technology company, and it's investing in many tech areas that complement its total business.
Gross merchandise volume (GMV) has increased at a compound annual growth rate of 28% since 2016, and shoppers in at least three categories have increased 468% since 2019. And it keeps improving the platform. The percentage of orders delivered within two days has been as high as 80%, but it's balancing speed with profitability, and this metric has fallen to 76% since the company now offers customers a weekly "delivery day." That's cheaper for MercadoLibre and makes for happy customers, and the delivery speed is still industry-leading.
The total population it serves is larger than many other global regions, and it's still underpenetrated in e-commerce and digital payments. That's a powerful combination that lends itself to incredible growth opportunities, and as the leader in the region, MercadoLibre is well-positioned to keep reporting high growth for the foreseeable future. Management mentioned three growth drivers: New buyers, higher engagement, and higher e-commerce penetration. Together, they create a powerful platform that's hard to challenge.
On top of e-commerce and fintech, MercadoLibre is investing in new businesses to keep growth healthy and lead to even more dominance. Its advertising business is gaining momentum, and it recently got a bank charter in Mexico, where it will operate a digital bank.
MercadoLibre's slate is brimming with growth opportunities, and investors should catch this unstoppable stock on its way up.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has positions in MercadoLibre. Jeremy Bowman has positions in Amazon, MercadoLibre, and Nike. John Ballard has positions in MercadoLibre. The Motley Fool has positions in and recommends Amazon, Lululemon Athletica, MercadoLibre, Nike, and Skechers U.s.a. The Motley Fool recommends On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy .
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