Amazon is one of the most closely followed stocks on the market, and for good reason. It has been one of the best stocks to own ever -- if you bought early enough and held on through the ups and downs.
Amazon still has plenty to offer investors, and it's a classic example of winners that keep on winning. However, it may not offer the same gargantuan, early-stage gains it did 25 years ago.
That spot's been taken by newcomers like MercadoLibre (MELI 3.09%), which is similar to Amazon but growing much faster. Let's see why you should consider buying it right now.
E-commerce and fintech rolled into one powerhouse
MercadoLibre is a Latin American e-commerce company based out of Uruguay but serving 18 Latin American countries. It started with an e-commerce website similar to Amazon's, but it has expanded to offering multiple payment-solution services and now credit products.
It has been demonstrating incredible growth for years. Sales increases were triple-digit for several consecutive quarters early in the pandemic, and now it has remained in the high double-digits in the aftermath. In 2023's third quarter, this was on full display again. Sales growth accelerated, increasing 69% year over year to $3.8 billion. This is on top of similar growth last year and for many years.
Gross merchandise volume and items sold also accelerated in the company's three main markets of Argentina, Brazil, and Mexico, and management attributed this to continuous improvements in its logistics network. It has done an incredible job of improving its delivery times, which are better than Amazon's, generating consumer loyalty and even higher sales.
Management says it has invested "relentlessly and consistently" in its products and services, which sounds very Amazon-like and leads to a cycle of better products, increased customer engagement, and innovation.
That brings us to its fintech segment, which has been demonstrating even better performance than e-commerce. It's a newer segment, and therefore is still in a very high-growth stage. Total payment volume (TPV) increased 121% over last year in the third quarter, while off-platform TPV, which are payments not on the MercadoLibre platform, increased 145%.
This is a digital payments business similar to PayPal, and it's catching fire. It was developed to enable the region's underbanked population to make purchases from MercadoLibre, but it has expanded to becoming a complete financial services app.
Why the opportunity is so compelling
You should take positions in stocks for the future potential, not past performance. And even beyond simply having confidence in the future based on how well it has done in the past, there are compelling reasons to get excited about MercadoLibre.
It's still harnessing the opportunity in e-commerce -- and even though it's the more mature of MercadoLibre's businesses. It recently launched a Prime-like program called Meli+, which includes free shipping on many items as well as access to Disney+ and Deezer and other perks. These are the kinds of small improvements that produce cumulative results.
It's also, no doubt, benefiting from a return to overall global e-commerce growth as consumers increase their digital shopping. Worldwide e-commerce is expected to grow at a compound annual rate of more than 10% over the next five years, and even higher in Latin America, at 11.5%.
Its successful bid into new areas that complement its core e-commerce business breeds investor confidence in MercadoLibre's continued ability to expand.
Scaling leads to profits
As MercadoLibre has scaled, it has made each dollar it uses go further, and it has become highly profitable as it expands its margins. Its newer fintech businesses are also asset-light and generate more income per dollar spent and lend themselves to profitability. MercadoLibre went through some profit pressure as it invested in growing these businesses, but it has been net profitable for several consecutive quarters. Profits are rising, and operating margin is expanding as it gets more bang for each buck.
MELI Operating Margin (Quarterly) data by YCharts
These trends are likely to continue as MercadoLibre captures more market share and invests in innovation and engagement with its customers.
Amazon stock or MercadoLibre stock?
Amazon split its shares last summer when its price tag reached over $3,000. While there's the ability to buy fractional shares, high price tags can look like a barrier to entry for many investors. MercadoLibre stock also comes with a four-digit price tag, and stocks with such high prices inevitably split.
As for valuation, MercadoLibre stock isn't cheap; it trades at a price-to-earnings ratio of 71. It gets a premium because its performance and opportunity are both so strong, and net income is soaring. However, it's actually cheaper than Amazon stock, which is trading at 74 times trailing-12-month earnings.
If you're looking for a top growth stock to supercharge your portfolio, consider buying MercadoLibre stock now.
