This year has been volatile for the stock market so far. Many investors are pulling their money out of growth stocks and placing it in safe stocks and dividend stocks. That's a sensible strategy when there's confusion and prices of high-growth stocks are plummeting.
At the same time, low prices create an opportunity that won't necessarily be repeated. Consider that even many of the growth stocks that are losing high percentages of their value are still way above where they started before the crash in March 2020. Take, for example, digital freelance platform Fiverr International. Its stock is down 75% over the past year, but up 75% from its pre-crash price. Fintech company Block is down nearly 60% over the past year, but up 23% from March 2020.
There are many companies that have settled down from extraordinary pandemic performance, and their prices have come down along with that. But they're still great companies posting high growth with excellent long-term prospects. MercadoLibre (MELI -0.49%) is down almost 40% over the past year, but up 60% from before the pandemic, and you might not get an opportunity to buy at this low a price again.
Taking the edge and running with it
MercadoLibre began operations in 1999, when even Amazon and eBay were still in their infancy, giving it a first-mover's edge in the Latin American market.
Based in Argentina, it now operates in 18 Latin American countries and is a leading e-commerce provider in all of them. Its largest markets are its home base of Argentina, as well as Brazil, the largest Latin American country by population, and Mexico. But its Latin American market of nearly 665 million people is about double the U.S. population, and about half of them -- nearly 300 million people -- are already buying online.
That number is expected to grow 20% by 2025, and Latin American e-commerce sales are expected to increase to $160 billion the same year, according to Statista. That's still slower than other emerging markets, giving MercadoLibre a long growth runway. According to payments company Ebanx, Brazil alone has a $156 billion market.
Although MercadoLibre started out focused on e-commerce, it has pivoted to offering a competitive fintech unit in Mercado Pago, its digital payments segment. Mercado Pago was a natural outgrowth of the platform, offering an integrated digital payments system for the network. And it has progressed to a stand-alone digital payments app similar to PayPal or Block's Cash App. Mercado Pago's total payment volume (TPV) increased 73% year over year in the 2021 fourth quarter, and off-platform TPV increased 96% (currency neutral).
The company's says its mission is now "delivering a suite of technology solutions across the complete value chain of commerce." Expanding its service line gives it more room to grow as well, and MercadoLibre has acquired many smaller, complementary companies over the years, improving its technology, growing its markets, and altogether making for a more competitive business.
It faces competition from Amazon, which has made tremendous strides internationally, as well as from new Latin American competitors in both e-commerce and fintech. Many other international companies are also ready to pounce on the massive opportunity, such as Sea Limited's Shopee app, which is popular in Brazil.
But MercadoLibre has maintained its No. 1 spot in its top markets.
The numbers are compelling
MercadoLibre absolutely exploded during the pandemic, benefiting from accelerated adoption of e-commerce and digital payments. It posted triple-digit growth for several consecutive quarters and made several new acquisitions to bolster its platform.
Thy hypergrowth is slowing down, but the company is still demonstrating phenomenal performance. Revenue increased 74% year over year (currency neutral) in the fourth quarter to $2.1 billion, and for the year, revenue increased 78% over 2020. Items per buyers increased 17% over 2020 in the fourth quarter, and gross merchandise volume increased 32% despite a challenging environment.
This might be as cheap as it gets
As a high-growth company, MercadoLibre stock typically trades at a high valuation. At the current price, shares trade at 7 times trailing-12-month sales. That's something of a premium compared to other e-commerce companies, but in line with many similar ones. And it's cheap compared to high-growth companies in general, and versus its own historical valuation.
At this price, and with its growth opportunities and track record, MecadoLibre is the stock I'd buy in 2022.