Investors are warming up to MercadoLibre (MELI -0.65%) stock again. The e-commerce platform's shares have trounced the S&P 500 in 2023 through mid-April on news of solid demand trends in Latin America. Wall Street is excited about MercadoLibre's potential in the quickly expanding fintech space, too.
Is it too late to buy the stock, which is up over 50% so far in 2023? Let's take a closer look.
Excellent momentum
MercadoLibre ended a solid 2022 year on a bright note. The company's core e-commerce business posted accelerating sales gains as platform volume sped up to 35%. The Brazilian and Mexican markets were standout performers, while volumes contracted slightly in Argentina and Chile.
MercadoLibre set itself apart from peers in its buyer growth, too. After contracting in the first quarter, this critical metric posted accelerating gains in each of the last three quarters, culminating with gains of 3.5 million in Q4. For context, eBay and Etsy both lost buyers in the last year.
Rising profits
The news has been just as positive around profits. MercadoLibre boosted its core profitability in 2022 despite headwinds such as soaring costs and a tilt toward payments-processing demand.
The company's booming fintech business put some pressure on margins, as it has for peers like Shopify. Yet MercadoLibre was still able to improve its efficiency, add to its cash balances, and generally strengthen its finances.
Executives said in late February that the 2022 results show how their operating approach "can yield high growth and market share gains alongside robust profit increases."
There are risks involved with owning this stock. Economic pressures in markets like Chile show how sensitive its business can be to recessions, for example. And MercadoLibre still carries significant debt. That debt burden is shrinking relative to earnings and cash flow but remains elevated at over two times adjusted profit.
Is the stock a buy?
The stock doesn't look expensive today but it's not cheap, either. Shares are valued at over six times revenue, compared to a price-to-sales (P/S) ratio of over 10 for Shopify and 5.3 for Etsy. If a recession hits, all these valuations could contract further in the short term.
But MercadoLibre's success in a tough selling environment this past year suggests that it can thrive through a potential downturn. The business has many competitive assets on its side, including scale, diversification, and financial strength.
Management is planning many more product and services launches this year thanks to the success of its platform-building efforts in recent months. "We believe we are well positioned to continue to drive growth and profit expansion...in the coming years," executives said.
Investors who agree with that statement should consider buying the stock for the long term. Yes, economic volatility might pressure growth over the next few quarters. But MercadoLibre has a bright future ahead as a growth stock that's targeting an expanding presence in key niches like fintech and commerce, along with rising profit margins. Investors should keep the stock on their watch lists as an excellent way to gain exposure to international commerce trends.
