There have been plenty of high-growth stocks that have been crushed over the past few weeks. While the major indexes are at all-time highs, companies like Upstart (UPST 3.80%) have fallen over 60% off their all-time highs.
When a large group of stocks falls for no business-related reason, I tend to pay very close attention and look for buying opportunities. In this period of market correction, I think that MercadoLibre (MELI 1.96%) is a screaming buy today. Not only is it down big from its highs, but the company is seeing increasing dominance in a fast-growing market.
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In Latin America, MercadoLibre has effectively become a one-stop shop for everything consumers may need. The company has built up a strong e-commerce brand across 18 countries in South and Central America. Its also created a market-leading fintech solution called MercadoPago, and MercadoEnvios -- the intercountry logistics solution that is rapidly becoming a major operator. With these services, MercadoLibre has amassed 79 million active users.
1. A dominant triad of businesses
Its e-commerce segment was its original business. As the most mature segment, it's seeing major success. The company's gross merchandise volume (GMV) on the platform grew 24% to $7.3 billion, and nearly 260 million items were sold on the platform in the third quarter alone. What is even more impressive is that despite having such a large-scale operation, the company is still growing its business rapidly. Even compared to 2020 -- where e-commerce was the only way to buy many products -- MercadoLibre is growing 30%. Relative to a normalized quarter -- Q3 2019 -- the company grew its GMV 73% per year.
Although this e-commerce business could be enough to get excited about, Mercado has two additional robust businesses. Its MercadoPago segment -- which offers online payment solutions, asset management, insurtech, and credit solutions -- is seeing rapid growth. Roughly half of its active users are also users of its fintech solutions, and MercadoLibre's credit portfolio reached $1 billion in Q3 -- growing 287% year over year.
MercadoPago's adoption is becoming widespread across Latin America because its usage off-platform is becoming more prevalent. Surprisingly, despite MercadoPago being a MercadoLibre service, most of the e-commerce transactions were from non-MercadoLibre sites. The total payment volume coming from non-MercadoLibre sites grew 79%, nearly reaching 800 million transactions.
The business opportunity with the most promise is Mercado Envios, its logistics business. Mercado Envios is able to ship and manage 86% of MercadoLibre shipments, but what is really special is that Envios' penetration on all shipments in the region is 37%. This is especially prevalent in Mexico, where Envios ships 65% of all items.
While it is special to see MercadoLibre's businesses excelling within its own ecosystem, the real proof of success is shown through its increased usage and dominance off-platform. This shows how well MercadoLibre is integrating itself into communities and operations in its fast-growing regions. If MercadoLibre wants to ride the wave of internet adoption in its geographies, this aspect is critical, and it is seeing vast success doing so.
2. A massive opportunity
MercadoLibre is dominating in its geographies, but some investors might be underestimating how much room this company still has to grow. Despite having nearly 79 million users -- which is roughly equivalent to 24% of the U.S. population -- that is a very small number in Latin America. In the 18 countries it operates in, there are over 635 million people. Additionally, Latin America is one of the fastest-growing regions in the world in terms of internet penetration.
The company currently just has 12% of its addressable population as active users, meaning that as the region begins to widely adopt e-commerce and online operations, MercadoLibre can grow even larger than it is today. With internet penetration being relatively low in countries like Mexico, Argentina, and Peru, MercadoLibre's adoption could continue to expand rapidly as these regions adopt more modern applications like fintech and e-commerce.
3. Trading at a huge discount
On top of dominance in multiple fast-growing countries, MercadoLibre is trading at valuations that are near five-year lows. MercadoLibre currently trades at nine times sales, a valuation it has reached only four other times in the past five years. Since 2017, the stock has consistently traded above 10 times sales, and it has even reached 25 times sales.
Shares are currently trading 40% off their all-time highs, leaving a clear bargain for investors to buy more of this stock. MercadoLibre might not be a company that can grow 100 times from its current market capitalization of $60 billion, but it could feasibly grow five or 10 times in value if it can continue dominating the ever-growing Latin American market. With this perfect mix of opportunity, dominance, and discounted share price, I think that MercadoLibre is one of the best stocks to buy today.
