Are you looking for a stock demonstrating phenomenal growth with incredible opportunities? One that's profitable and trades at a reasonable valuation? Then MercadoLibre (NASDAQ: MELI) fits the bill. Read on to see why.
1. A never-ending growth machine
You might be surprised to learn that MercadLibre is almost as old as Amazon . However, its Latin American population didn't catch onto the internet as quickly as people did in the U.S. Only recently has MercadoLibre expanded its business into new areas that continue to supercharge its growth.
MercadoLibre's markets, or the 18 countries where it operates, are still underpenetrated in e-commerce and fintech. But its main markets are some of the fastest-growing in the world. . Revenue increased 42% year over year in the 2024 second quarter, with a 20% increase in gross merchandise volume (GMV) and a 36% increase in total payment volume (TPV). Currency neutral, those rates were much higher since MercadoLibre operates in different countries and reports as a public company in U.S. dollars.
These aren't unusual numbers for MercadoLibre. It has reported solid growth across metrics every quarter, and there's every reason to expect that to continue.
2. Plenty of opportunities
MercadoLibre is brimming with opportunity. While it's still reporting rapid growth rates in its current businesses and innovating to stay on top, it's also trying its hand at new businesses that could become big growth generators, a la Amazon.
It just launched its first membership program called Meli+, similar to Amazon Prime. It keeps improving the e-commerce platform with better shipping times, and its 2-day shipping rate reached a high of 80% last year. It also recently began offering a day of the week when members can receive their shipments.
Although that negatively impacted the company's same- or next-day shipping time, it's member-chosen and comes at a lower cost to the company. Fulfillment penetration, which tracks how many suppliers are using the MercadoLibre logistics network, increased by 8 percentage points in the second quarter, getting more products to more shoppers quickly.
The company also opened its first U.S. based fulfillment center in Texas. For now, the purpose is to offer a greater selection of products for customers in Mexico, but could it be a pilot into U.S. operations? We'll see.
Fintech is still the high-growth business here. Monthly active users increased 37% year over year in the second quarter for MercadoPago, the digital payments service. Products per user are increasing, and newer cohorts are sporting higher retention levels.
The credit business is booming, as well, and there are plenty of new ways the company can take it. The total portfolio increased 51% year over year in the quarter, and credit TPV growth increased 208%. MercadoLibre applied for a bank license in Mexico to offer a greater set of services, and that could lead to a larger financial presence in other countries.
3. A swelling bottom line
MercadoLibre isn't just good at drumming up business -- it's proven adept at turning sales into profits. Net income increased 103% in the second quarter, and a profit margin of 10.5% was its highest in eight years. Adjusted free cash flow was $678 million, up from $145 million last year.
Putting that into context, MercadoLibre operates in a region with a volatile economy. Brazil and Argentina, two of its three largest markets (the other is Mexico), have been dealing with high inflation, and Argentina's economy has been slammed. MercadoLibre's wide range of countries hedges against problems in any one of them, and its efficiency and expansion efforts are leading to profits, despite the volatility.
4. A valuation that screams "buy me"
I'm not going to claim that MercadoLibre stock is cheap, but cheap and expensive are relative when it comes to the stock market. With these kinds of features, MercadoLibre stock can demand a premium valuation, but it looks like a bargain, compared with its opportunities and performance.
It trades at a forward one-year price-to-earnings ratio (P/E) of 45 and a price-to-free-cash-flow ratio of 19. That prices in some growth and expectations, but MercadoLibre can meet them. This isn't an unjustifiably high price for a hyped-up stock but a reasonable valuation for a stock that deserves a premium.
If the high price, which is over $2,000 now, or high valuation looks intimidating, nibble at this stock through fractional shares or dollar-cost averaging .
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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 has positions in MercadoLibre. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy .
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