In August my family sold our hotel stock, Park Hotels & Resorts (PK 2.32%), and we bought more shares of a South American e-commerce play, DLocal (DLO 0.97%). This trade is likely unique to my family. Probably nobody else in the universe has sold shares of Park Hotels in order to buy DLocal stock -- certainly not on the day we did it. But I thought it might be of interest to discuss why we made this trade.
Why did we give up on Park Hotels? And why did we want to buy more stock in DLocal? Here's why.
In 2020, COVID-19 hit, and the stock market crashed
When the COVID-19 pandemic first hit, governments around the world shut down their economies and we all went into quarantine. Of course the stock market tanked on this bad news. I would have days where every stock in my portfolio was bleeding out, except for my COVID-fighting vaccine superstar, Novavax, which ran up 3,000% that year.
I had a few investing strategies in the middle of that pandemic. My No. 1 idea was to hold on to Novavax. My second idea was to buy more shares of internet winners like Shopify and Roku. And my third idea was to make investments in brick-and-mortar businesses that had been shut down in the quarantine. Those stocks had been truly killed, and I wanted to do some bottom-fishing.
So my family initiated positions in IMAX, Royal Caribbean, and Park Hotels & Resorts. My investment thesis was that our world's fears over COVID-19 would diminish, and ultimately we would see nice recoveries in movie theaters, cruise lines, and hotel stocks as our world reopened.
My Park Hotels investment more than doubled in a year, which was great, running up from $10 a share to $25. Unfortunately we held for an additional year, and all that recovery exuberance dissipated as the stock dropped from $25 to about $15.
In August I started asking myself, "Why am I still holding this hotel stock with this tiny, tiny dividend?" My investment thesis had largely played out. I was right that COVID-19 was not the end of the world, and the stock market did indeed correct (and shoot much higher). But once the world normalized, I didn't have a strong reason to own Park Hotels. In fact, I'm rather negative on the hotel industry as a whole, as I think Airbnb is going to seize a lot of market share from hotels over time.
So my timing was bad (as usual), but our 50% profit on the Park Hotels sale was pretty good. And we had a much better place to park our money for the future.
DLocal is an exciting opportunity in internet commerce
Historically my biggest winners in the stock market have been internet commerce stocks. From Amazon to Carvana to Sea to Opendoor, there are huge opportunities to make money as the internet transforms the world economy.
DLocal specializes in opening up emerging online markets to American multinationals. In much of the world, people don't use dollars, they use the local currency. So when people shop online in South America, or Asia, or Africa, their credit cards or debit cards are usually backed by local forms of payment.
This creates difficulties for American companies that want to engage in internet commerce abroad. To reach those consumers, you need to convert the local currencies to dollars and back again. International credit cards like Visa and Mastercard only reach about 30% of the world's population. How do you market to all those billions of people around the world who do not have an international credit card?
That's where DLocal comes in. The company's app converts over 700 local payment methods in emerging markets around the world into dollars or euros. This is why companies from Amazon to Microsoft to Nike to Uber to Booking Holdings subscribe to its solution, and why Shopify is partnering with them. DLocal opens up internet commerce in 37 emerging markets. More and more U.S. multinationals are subscribing to DLocal's solution, which makes internet payments quick and easy in foreign lands, and prevents fraud.
The numbers speak for themselves. In 2020, $2.1 billion in total payment volume (TPV) ran through DLocal's solutions. While that seems like a large number, it's actually just a drop in the bucket. Over $1.2 trillion in e-commerce transactions happened in DLocal's emerging markets in 2020. And these numbers are escalating dramatically. DLocal just reported $2.4 billion in TPV in Q2. That's a higher number in one quarter than the company did in all of 2020!
DLocal has 30% profit margins and 71% revenue growth. The multiple has been shellacked over the last year, making the stock a lot cheaper. The price-to-sales ratio has dropped from 121 to 23, and the P/E ratio has also been slashed (falling from 345 to 77). This is an amazing company, and its stock is a heck of a lot cheaper than it used to be. So that's why we took profits in Park Hotels, and doubled our position in this fintech superstar.
