Growth stocks were all the rage over the past few years, and especially at the beginning of the pandemic. But as valuations skyrocketed and economic trends shifted, investors have been moving their money out of growth stocks and into safer value stocks.
That means many growth stocks are tanking, even though they're still posting exceptional growth. With valuations coming down and prospects still strong, some of these stocks look like great buys. MercadoLibre (MELI 0.27%) and Marqeta (MQ 0.18%) are two stocks that you can buy at a big discount.
MercadoLibre, based in Buenos Aires, is an e-commerce giant in Latin America, similar to eBay in the U.S. And it's been growing like a weed, even before the pandemic.
The company posted fourth-quarter earnings this week that demonstrated sustained growth. Revenue increased 74% (currency neutral) year over year to $2.1 billion, gross merchandise volume was up 21% to $8 billion, and active users increased to 82 million from 78.7 million in the third quarter. Customers were also more engaged, with items per buyer increasing 17% year over year. Total payment volume on the Mercado Pago platform, the company's digital payments platform, increased 73% in the quarter to $24 billion.
It was an all-around great report that demonstrates that this company is more than a pandemic phenomenon. It's tapping into its strength as a digital superpower in a region that's still mostly cash based but moving toward a digital transformation. It's well placed to benefit from that shift and is working to create it all at the same time. It's been investing in expansion through various initiatives, acquiring logistics company Kangu to support its shipping network and Chilean company Redelcom to bolster its payments platform.
That leads to what wasn't positive in the report, which was a net loss of $33 million. That was an improvement from $40 million last year, and gross margin was a comfortable 40%, an improvement from 36.8% in the 2020 fourth quarter. MercadoLibre is not a new growth company trying to post a profit; it has been profitable in past periods. Management said the loss was due to interest rates and currency exchange rates.
MercadoLibre stock is down 48% over the past year but up 146% over the past three years. It's important to keep the long-term perspective in mind and know that this is a winning stock. Tech stocks and highly valued stocks have fallen out of favor, and the global political situation is hitting the stock market as well. But MercadoLibre is an excellent company, and you can now buy shares at a steep discount.
Marqeta hasn't exactly electrified the investing community since it went public last year, even though this fintech company offers a competitive business platform and is posting high growth.
Marqeta provides credit card solutions for enterprise customers. It operates a customizable model to meet a client's individual needs and calls itself the "modern credit card issuer." It works with companies such as Uber and food delivers, creating a program for drivers to pay for orders, and Instacart, offering capabilities to "bridge the gap between online ordering and in-store payment." It works with buy now, pay later companies like Affirm Holdings and Klarna to move money from a purchaser's card to the merchant.
Sales have been brisk, increasing 56% in the 2021 third quarter and volume increasing 60% year over year. The financial performance is also improving, with $59 million in gross profit, and gross margin widening from 42% to 45% year over year.
In early February, Marqeta announced that it had hired a new chief financial officer and also raised its forecast for the fourth quarter in light of higher than expected processing volume. It will release fourth-quarter earnings on March 9. It originally projected fourth-quarter revenue of $134 million to $139 million and an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $7 million to $10 million. That's a 54% revenue increase and an improvement in EBITDA from $13 million in 2020.
Marqeta went public in June last year at $27 per share, closing the first day at $32. It's now down about 67% since then. As for valuation, shares trade at a price-to-sales ratio of 12, which is high but not out of the ballpark for high-growth companies. The biggest risk here is clearly profitability, which is nowhere in sight and accounts for most of its poor stock performance. If you can handle some risk, you can buy shares of Marqeta at steep discount to its IPO price.