MercadoLibre (MELI -1.01%) stock bucked the broader market trend on Wednesday, climbing as much as 12.2%, though it gave back most of those gains as the day wore on. The robust nature of the company's fourth-quarter financial report surprised some investors, particularly given the recent correction, which has taken down many high-valuation and high-growth stocks alike.
While many expected the adoption of e-commerce and fintech in Latin America to slow, MercadoLibre's results turned that notion on its head, suggesting the deceleration of digital retail in the region wasn't as nearly severe as many had thought, leading investors to one inevitable question: Is MercadoLibre stock a buy?
It's important to put the company's growth in the context of the broader opportunity in Latin America, where online sales are projected to grow at a compound annual growth rate of 29% between 2020 and 2024, to more than $580 billion, according to Americas Market Intelligence, making it one of the fastest-growing e-commerce markets worldwide.
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While that regional growth rate is impressive, some individual markets are growing even faster. Brazil, which represents the largest economy in the region, reported e-commerce growth of 68% last year, on top of 75% growth in 2020. Mexico's online sales were also on fire, more than doubling during the first half of 2021, after 81% growth in 2020.
MercadoLibre has been able to capitalize on the mass migration to digital retail. Not only is it the leading provider of e-commerce services and digital payments services in the region, but it has expanded its offerings to include shipping and logistics, warehousing and cross-docking, merchant and consumer finance, and more. With each new expansion, MercadoLibre increases the stickiness of its ecosystem.
It bears noting that Mercado Pago, the company's fintech solution, became so popular on its platform that other merchants asked to use it as a payment option on their websites. Eventually, Mercado Pago made the leap to brick-and-mortar stores, pushing total payment volume off platform up 97% year over year.
With the stock down 50% off its peak and secular tailwinds driving its results higher, I would argue that the selling is overdone and investors that buy MercadoLibre stock now will be very glad they did.
