Why Now Is the Time To Buy This Latin American Stock

In its latest earnings report, MercadoLibre (MELI 1.43%) posted a strong quarter. In this video clip from "The Future of Fintech" on Motley Fool Live, recorded on Feb. 24, Fool.com contributors Danny Vena and Matt Frankel look at the impressive numbers for the Latin American e-commerce giant that will get investors excited.

Danny Vena: MercadoLibre has been called a lot of things. When it first arrived on the scene it was called the eBay (EBAY -0.54%) of Latin America because back then, eBay was the dominant e-commerce platform. Since then, it has been called the Amazon (AMZN 1.34%) of Latin America because now it hosts e-commerce platforms for a wide variety of merchants across Latin America. It's been called the PayPal (PYPL -0.14%) of Latin America because of its fintech arm, Mercado Pago.

It offers a wide variety of things and it's earned all those names but really none of those paint a full picture of what it is MercadoLibre does. If you've been looking at the slide here, as I'm sure you have, it covers a lot of area. I'm going to stop that screen share for just a minute and I'm going to jump forward to the numbers.

Now, one of the things that we have seen lately with a lot of e-commerce stocks is the fact that they put up pretty good numbers year-over-year, but they haven't been near the level that they were growing triple digits during the pandemic. A lot of that has caused the e-commerce stocks to fall because some investors think, well, e-commerce is over. It got a bump from the pandemic and now we're not going to see growth for years.

Mercado Libre really turned that on its head. Not only did the company grow pretty impressively, year-over-year up 74% in the fourth quarter, but also it edged higher sequentially across a variety of metrics. Gross merchandise volume was up year-over-year and sequentially. That is the value of the products sold on its platform.

Its fintech arm did a lot better than that. Total payment volume grew 73%, and that was up from 59% in the third quarter. Off platform total payment volume. I want to take a second on that. MercadoLibre used to be like PayPal, just something that MercadoLibre used on its platform in order to help users make payments.

Because we're talking about an area of the world that is still largely cash-based, half the people in the region don't have a checking account, don't have a credit card, and Mercado Pago allowed them to go to the local convenience store, give some money to the cashier, have it added to their account, and boom, use Mercado Pago like a credit card. It became so popular, however, that it moved off of MercadoLibre's platform and a lot of merchants that had websites said, "Hey, I want to use that payment method here too because it's so popular."

Eventually, it moved off the platform and is now accepted at a growing number of brick-and-mortar stores. You can see the off-platform total payment volume nearly doubled again year-over-year and that's up from 79% growth in the third quarter. By and large, MercadoLibre delivered on all of the metrics that matter. We saw consistent growth in its user base, we saw consistent growth in the non-financial metrics that tend to vary over time.

But this really was exactly what the company needed to do in order for investors to say to themselves, "Hey, well, that's not too bad. I expected it to be like all of the other e-commerce stocks that I have in my portfolio that have fallen lately and it really didn't do that."

Matt Frankel: I was very impressed with the numbers all around. Still, a pretty small company when you compare it to Amazon or any of those. One thing I would say about MercadoLibre and other stocks like this, don't try to time the bottom on these. If you love a company, you love their results, you love what they're doing, go for it. It may fall another 10%, it may go up another 10%, whatever. Don't try to time the bottom.

It's a real estate quote that I like to say, is that you make your money when you buy, not when you sell. It's really true when it comes to investing in these stocks. You make your money by buying good companies at reasonable valuations not by trying to time the bottom. No one tries to time the real estate market to the day to try to get the best deal. The same logic should apply here. If MercadoLibre is $2,000 again in the year, am I going to care whether I paid $800 or $900 for it right now? No.

That's just something to keep in mind as you start looking for opportunities in this market. But I really love MercadoLibre's business all around. I feel like it could be, not necessarily as big as Amazon just because the U.S. is a more lucrative market than Latin America, but it could definitely be in the same ballpark. It's really not yet. It's still pretty small, relatively.