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Should MercadoLibre Investors Be Worried About These Key Risks?

By Rachel Warren and Danny Vena – Jan 7, 2022 at 3:54PM

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Two Fool contributors weigh in.

No investment is devoid of risk. That said, more risk-averse investors might shy away from investing in a high-growth stock like MercadoLibre (MELI -0.36%) that operates in a highly competitive and challenging market. Is that a mistake? In this segment of Backstage Pass, recorded on Dec. 15, contributors Rachel Warren and Danny Vena discuss the company's viability. 

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Rachel Warren: Then this was a question that a member, Corbinator, directed to you, Danny, "thinking about adding to MercadoLibre position with the recent drop that I had paused as I started learning more about the political and economic risks, I'm interested to hear your thoughts. How do you look at this, always love your insights." You have thoughts on this Danny?

Danny Vena: I absolutely do. What I would encourage people to do if you are an investor in MercadoLibre or if you're considering investing, go to Google and type in hyperinflation Latin America or hyperinflation, Argentina. You'll see there are stories that go back more than a decade. That's how long I've been invested in MercadoLibre.

If you look at Google, things like Brazil and political issues and you will see a whole bunch of those come up. The reason that I say that is because after being invested in MercadoLibre for going on a dozen years now, what I have found is that this is a company that continues to perform, management continues to execute.

Even with all of the other things that are going on in Latin America. It doesn't affect the fact that there are still people there that are unbanked or underbanked, that use its Mercado Pago payment system.

There are still people that still need to buy things and they need to buy them in the local currencies where they live. Since MercadoLibre gets a piece of every purchase, they get a cut of every purchase that's made. They get it in that local currency and that money stays in that country. Inflation is not hurting MercadoLibre's opportunities.

I would encourage you to go ahead and do some research and then buy the stock anyway. That's one Fool's opinion. The mileage may vary.

Rachel Warren: [LAUGHTER] Thank you, Danny. That's great. I think the thing I've liked about this stock is the fact that it operates in these two highly lucrative resilience sectors; fintech and e-commerce. It dominates those spaces in Latin America and it's been around for so many years and has maintained and grown such a substantial market share, even as new competitors are entering this space.

I think that speaks a lot to the power of its underlying business, which has continued to thrive in a really broad range of economic and market environments. This is not a new company. This kid has been around the block a few times so it's definitely a strong one to look at, I think.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns Alphabet (A shares) and MercadoLibre. Rachel Warren owns Alphabet (A shares). The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), and MercadoLibre. The Motley Fool has a disclosure policy.

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