Latin American e-commerce leader MercadoLibre (MELI 1.14%) is a riddle. The broader stock market is near all-time highs, but this stock is down roughly 20% from its peak. What gives?
There's not an obvious problem with the company. Sometimes, the stock market acts irrationally, and we must take that at face value.
However, investors need not sit idly by while such an outstanding growth stock trades at a discount. I had to double-check the fundamentals to ensure I didn't miss something, and what I found was a stellar business trading at bargain prices.
Here is why investors should be all over MercadoLibre stock today.
When consumer needs and quality solutions come together
Latin America is a region with a massive (but economically underdeveloped) population of 670 million. Many people lack essential modern luxuries that others take for granted, such as e-commerce and basic banking services.
About 70% of them lack access to a banking/savings account or are underbanked, meaning they can't use lending or other complementary products and services.
MercadoLibre has worked to solve these problems since it started in 1999, and the company has mostly flown under the radar. It started with e-commerce, steadily building fulfillment centers and delivery networks. These physical assets take money and time to build up, and they help create a competitive advantage.
MercadoLibre also has a fintech business that gives users access to several financial services, like digital payments, digital wallets, and basic banking.
Providing solutions to these consumer problems has resulted in stellar long-term growth:
MELI Revenue (TTM) data by YCharts; TTM = trailing 12 months.
The pandemic helped accelerate consumer migration to e-commerce and fintech, fueling MercadoLibre's growth. Revenue has multiplied several times over since 2020, so investors need to know whether the company still has room to grow. The answer: You bet.
There is abundant expansion space
The opportunity in Latin America is significant enough that it's hard to imagine growth falling off a cliff anytime soon. As of the first quarter this year, MercadoLibre had 53.5 million unique e-commerce buyers and 49 million fintech users -- a fraction of the total population in its market area. And growth could come from multiple sources.
Obviously, MercadoLibre will grow as more people use its e-commerce and fintech products and services. E-commerce could become an increasingly significant portion of total consumer spending, as it has in the U.S.
On the fintech side, there is bound to be more money flowing through it as the Latin American economy develops and consumers have more income and desire to borrow or invest.
Analysts are very bullish on the company's long-term prospects. Their consensus is that total revenue will grow 34% from last year to over $19 billion in 2024. Estimates also call for MercadoLibre to double its revenue to over $39 billion by 2028, excellent growth for such a large business.
Shares are rarely this attractive.
The fundamental evidence points to a very bright future for the company. But for some reason, the stock isn't enjoying a similar sentiment. If you measure the company by its enterprise value versus its revenue, the stock is near the cheapest it has ever been outside of the financial crisis in 2008-2009. But MercadoLibre was a much smaller, far less-proven business years ago.
It's a head-scratcher as to why the stock is valued so low today despite the apparent explosion in revenue and profits over the past four years and the likelihood that solid growth will carry it higher in the coming years.
MELI EV to revenue data by YCharts; EV = enterprise value.
The stock would double if it simply reverted to its average valuation from the past decade. I'm not going to go as far as calling for that.
Still, at the very least, it gives investors an idea of how undervalued MercadoLibre looks today and the potential margin of safety you can enjoy by owning the stock at these levels.
