E-commerce is one of the defining investment topics of the past few decades, and no company represents that more than Amazon, whose stock has returned a mind-melting 158,000% over its lifetime.
Amazon is still an outstanding stock today, but it's also a trillion-dollar company, and those looking for life-changing investment returns may need to look elsewhere. MercadoLibre (MELI +3.06%) fits the bill so well it's almost poetic.
Give Amazon its roses, but investors looking for a home run should buy this lesser-known e-commerce giant instead.
Following the Amazon playbook to e-commerce dominance
MercadoLibre was founded only a few years after Amazon. It's spent years following the Amazon blueprint to become the leader in Latin America. The first step is investing a lot of money to build the supply chain and logistics to support a massive e-commerce business. Amazon is dominant in the U.S. because you can buy almost anything and have it delivered as quickly as the same day.
MercadoLibre has done the same in its market, investing billions of dollars to set up the people and facilities to provide online shoppers with variety and excellent service. This is especially valuable in Latin America, which isn't as economically developed as the U.S. Plus, MercadoLibre is still a much smaller operation. Its gross merchandise value hit $11.4 billion in the third quarter, up 59% year over year (adjusted for currency exchange). Over half of e-commerce orders were shipped and delivered the same or next day.
NASDAQ: MELI
Key Data Points
It doesn't quite have the runaway market share that Amazon has in the U.S. (38% in 2023), but it still controls over 21% of a fractured and underdeveloped region. Importantly, estimated e-commerce growth rates for several prominent Latin American countries range between 17% and 35% through 2026. Growth should stretch far beyond that as the region continually develops and discretionary income rises.
Expanding to become a fintech empire
Amazon eventually branched out to create new businesses, and MercadoLibre has done the same. Instead of cloud computing, MercadoLibre shifted to fintech and is becoming a financial powerhouse for Latin Americans who need banking and payment services. It's a great opportunity because an estimated 122 million people in Latin America don't even have access to a bank account yet.
MercadoLibre has amassed a 48.8 million customer base of unique active fintech users, including 28.5 million who use MercadoLibre digital wallets. Users can bank, borrow, send payments, invest, and insure -- all through MercadoLibre. Its total payment volume was $47.3 billion in Q3, a 121% increase from a year ago (on a currency-neutral basis).
There are over 660 million people in Latin America, leaving the company room to multiply its e-commerce and fintech customer bases, and that doesn't factor in the natural growth that could come as the region's economy grows over the coming decades.
Putting numbers to the stock
MercadoLibre has grown large enough that profits are taking off. The company's free cash flow has surged to over $4 billion these past four quarters:
Data by YCharts.
The above chart pattern is often called a hockey stick, where it slowly builds and then exponentially takes off. It's excellent news for the company's earnings growth potential.
The below chart shows the other side of the equation, what investors are getting for their money if they buy the stock today. Currently, MercadoLibre trades at a forward price-to-earnings ratio of 52. That's a hefty valuation, but it's not so bad when you factor in the strong growth ahead. Analysts believe MercadoLibre can grow earnings by an average of 30% annually over the next three to five years.
Considering the business grew revenue 69% year over year in Q3 and the long runway to expand in Latin America, there seems to be plenty of momentum to support this outlook.
Data by YCharts.
I use the price/earnings-to-growth ratio to gauge the bang I'm getting for my buck, looking at a stock based on what it's valued at versus what growth could look like. At a PEG ratio of 1.7, MercadoLibre isn't a bargain, but the stock is cheap enough that if you're planning to hold it long term, the price shouldn't stop you from investing.
MercadoLibre has the potential to grow at a double-digit rate for the foreseeable future, making it a strong candidate to build life-changing wealth.
