The best time to buy growth stocks might be when no one else is. Warren Buffett has famously said to be greedy when others are fearful, and fearful when others are greedy. This current volatile stock market, where growth stocks have plunged, is ripe with opportunity.
Many growth stocks come with a lot of risk, which is precisely why they're down right now. But others are already dominating their industries and are profitable, and at current prices, look very compelling. My vote for the top growth stock to buy right now goes to Latin American e-commerce giant MercadoLibre (MELI 0.87%).
A massive opportunity
MercadoLibre operates an e-commerce business similar to Amazon. Active buyers increased to nearly 41 million in the 2022 second quarter, a fraction of the Latin American population of more than 650 million.
MercadoLibre currently serves 18 of 33 Latin American countries, and its three core markets -- Argentina, Brazil, and Mexico -- are consistently growing. According to Statista, retail e-commerce sales in Latin American increased from $50 billion in 2019 to $85 billion in 2021. They're expected to reach $160 billion in 2025.
MercardoLibre has a large chunk of market share. Gross merchandise volume (GMV) increased 26% year over year in the second quarter. For comparison, Amazon's product sales increased 2.5% in the second quarter.
MercadoLibre also offers fintech services, which grew out of its e-commerce business. Latin America has a traditionally under-banked population, and MercadoLibre provides digital-payment options through its MercadoPago app, which is similar to PayPal's digital-payments app.
This has expanded to a significant assortment of merchant services and a robust personal finance app that includes asset management services and credit products. These services are growing at a fast clip. Total payment volume (TPV) increased 84% year over year in the second quarter. However, TPV on the MercadoPago app increased 167%.
MercadoLibre certainly faces competition. For shopping, at least one strong candidate is Sea Limited's Shopee shopping app, which is growing in popularity in Brazil. It also operates in Mexico, Colombia, and Chile.
As for competition in fintech, according to the Inter-American Development Bank, Latin American fintech platforms grew 112% from 2018 to 2021 to nearly 2,500, many focused on digital payments and digital loans. Some of these work with MercadoLibre, but others are offering competing services. Warren Buffett's Berkshire Hathaway, for instance, has positions in StoneCo and NuBank, two Latin American fintech companies.
As one of the oldest and largest, MercadoLibre has an edge over newcomers. But it's focused on delivering an improved experience, capitalizing on the best technology to maintain its dominant position.
A growth stock that's profitable
MercadoLibre's revenue increased 57% year over year in the second quarter on top of 103% growth last year and 123% the year before. Net income was $123 million, or almost double the $68 million from last year.
Gross margin improved from 44.3% last year to 49.4% this year, mostly due to the benefits of scaling as sales keep growing. Profit margin improved from 4% to 4.7%. It ended the second quarter with more than $2 billion in cash.
The company doesn't post positive net income each quarter, but it's carefully balancing investments in growth with posting profits. As it continues to post revenue increases, it should benefit from even stronger economies of scale and be able to fund new growth ventures while remaining consistently profitable.
A low-priced entry point
Finally, MercadoLibre stock is down 50% over the past year. Shares trade at five times trailing 12-month sales, which is a very reasonable valuation for a profitable growth stock. This is a classic opportunity to buy an excellent stock on the dip.
