Each bear market has its own causes and fears; the one we're in now is driven by the fear of a weakening consumer and rising interest rates. However, it's nowhere near as dire as the Great Recession bear market experienced during 2008 and 2009. Back then, the market was concerned about the potential collapse of the U.S. financial system. To me, that seems a bit scarier than the current market environment.
Still, that hasn't stopped the market from sending one of my top stocks down to the same valuation it experienced in 2009. MercadoLibre (MELI 3.09%), the Latin American e-commerce giant, has been aggressively sold off despite not operating in the U.S., where the economic fears are concentrated. As a result, this stock may be one of the best values in the market right now. Read on to find out why.
Image source: Getty Images.
Valuation and price are not the same
Since the bottom of the Great Recession in March 2009, MercadoLibre's stock is up over 4,700%. If its stock has increased that much in 13 years, how is it as cheap as it once was? The answer is valuation, not stock price. Valuation measures the company's stock price against a business metric, such as earnings or revenue. This metric gives investors better insight into how much they are paying for a stock's business, rather than just how much they are paying for the stock. As a result, valuation is a better indicator of when to purchase a stock, as it isn't as arbitrary as a stock price.
For the past decade, MercadoLibre has traded between eight and 12 times sales. Yet, it's trading for around five times sales now, a low last reached in March 2009.
MELI PS Ratio data by YCharts
Back then, MercadoLibre didn't have its credit or logistics division and had only launched operations in Central America three years prior. Its gross merchandise volume (GMV) sold on its commerce platform was a mere $521 million in the first quarter of 2009 vs. $7.7 billion in Q1 2022.
MercadoLibre is a much more dominant company now than in 2009 and is growing just as quickly.
Better growth than in 2009
Despite the economic difficulties experienced worldwide in 2009, MercadoLibre still found a way to grow its revenue by 12% year over year to $32.3 million in the first quarter. Thirteen years later, MercadoLibre's revenue increased by 67% to $2.2 billion in the same quarter. That's over 6,700% growth in 13 years, and MercadoLibre isn't done yet.
One growth driver for MercadoLibre is its Mercado Credito division, which has more than quadrupled in over a year. This segment has allowed MercadoLibre to expand its take rate (how much money it scrapes from each transaction it processes) from 3.19% in Q1 2021 to 3.84% in 2022. This slight increase may not seem like much, but it makes a difference when processing as much volume as MercadoLibre does. With a total payment volume of $25.3 billion (up 81% year over year), this take rate expansion produces $164 million more revenue for MercadoLibre.
Despite difficult pandemic-influenced comparisons, MercadoLibre's commerce revenue still rose 44% for the quarter, and GMV was up by 32%. By comparison, e-commerce giant Amazon's sales were only up 8% in North America and fell 6% internationally. Either the consumer in Latin America hasn't been as affected as others or MercadoLibre still has a long runway in Latin America.
According to Statista, about 4.9% of Latin America's total retail sales occur online vs. 16.2% in the U.S. MercadoLibre has a long way to go to develop its core market before reaching the same level of online commerce as the U.S., which is excellent news for investors to hear.
With the second quarter well underway, investors will need to wait a couple of months until MercadoLibre reports its quarterly results again to see if it is experiencing the same slowdowns as U.S. retailers.
Image source: Getty Images.
With MercadoLibre's diversified revenue streams between commerce and its fintech wing, I doubt the company reports anything less than a stellar quarter.
Bringing it full circle, MercadoLibre is excelling on all business fronts. However, it's somehow valued the same as it was during the depths of the Great Recession. This valuation makes no sense.
Investors should be chomping at the bit to pile into MercadoLibre's stock. It's growing fast, well below historical valuation, and has a massive market to develop. You'd be hard-pressed to find another decade-long investing opportunity better than MercadoLibre.
