With the market hitting a new high, we've checked all the boxes to know we're in a new bull market.
With bullishness providing a tailwind to the market, one of my favorite high-growth stocks, MercadoLibre (MELI 3.09%), could be poised to continue its incredible market-beating performances.
Dominating a massive market
The primary income source for over 1.8 million families in Latin America, MercadoLibre and its e-commerce and fintech operations have become an integral part of the 18 countries where they operate. Helping 9 in 10 of its small-and-medium-sized enterprise (SME) customers sell items outside their founding city -- and 8 in 100 SMEs expand its operations to different countries -- MercadoLibre has revolutionized entrepreneurship in Latin America.
Growing alongside Latin America, whose internet penetration rate rocketed from 3% in 2000 to 81% in 2023, the company saw its stock rise over 6,000% since its initial public offering (IPO) in 2007. Even after this incredible run, however, MercadoLibre's 50 million unique active buyers and 49 million fintech users remain well below Latin America's population of roughly 660 million people.
Despite having plenty of room to continue growing its user base, the company is already the most visited e-commerce site in Latin America, generating over 440 million monthly visits as of April 2023. This first-mover advantage allows MercadoLibre to test new growth options -- and the number of these new ideas feels somewhat endless.
Growth optionality abound
Building upon its leadership position, the company continues to explore and dive deeper into several promising growth options ahead of it, including:
- Geographic expansion: With Brazil, Mexico, and Argentina accounting for 96% of MercadoLibre's revenue, steady geographic expansion should be a decades-long tailwind for the company.
- Off-platform payments: While the company's fintech unit was created to facilitate digital transactions made on its e-commerce platform, it now sees nearly three times as much total payment volume (TPV) come from other use cases off of its platform. Whether peer-to-peer payments, in-store purchases using Mercado Pago (the company's fintech unit), or bill payments, this TPV off-platform is growing by leaps and bounds, up 145% in the most recent quarter alone.
- Advertising: Ads on the platform have grown by over 70% for six consecutive quarters and now account for 1.7% of total gross merchandise volume (GMV). These high-margin sales help explain how the company has raised its net income margin to 10% in its last quarter.
- MELI+: MercadoLibre relaunched its loyalty program in the third quarter of 2023. Newly designed, MELI+ offers free shipping on items over $6 and free subscriptions to Disney's Disney+, Star+, and Deezer for roughly $4 monthly.
- Credito: Surpassing $1 billion in TPV, the company's credit card offering grew by more than 70% despite still being reined in somewhat due to the product still being in a trial-and-error "investment phase." In addition to this credit card volume, Mercado Credito offers personal loans to individuals and working capital and e-commerce loans to businesses in its ecosystem. In total, the company's credit portfolio grew by 27% in its latest quarter while recording a net interest margin after losses (credit revenue minus bad debt and funding costs) rate of 37%, highlighting its early profitability.
Altogether, MercadoLibre grew revenue by 40%, which would have been an even more impressive 69%, if not for foreign exchange headwinds.
And the cherry on top for investors? This incredible growth is accompanied by steadily rising profitability.
Burgeoning profitability and a reasonable valuation
Growing its net profit margin for seven consecutive quarters, MercadoLibre offers investors the best of both worlds -- streamlining profitability alongside immense growth potential.
MELI Profit Margin (Quarterly) data by YCharts
Despite this burgeoning 10% net income margin, the company continues to trade well below its historical averages on a price-to-sales (P/S) basis.
MELI PS Ratio data by YCharts
To put this P/S ratio in perspective, if MercadoLibre maintained its 10% net income margin for an entire year, it would be trading at 67 times earnings. And this doesn't account for the 35% revenue growth analysts expect in 2024.
Thanks to this reasonable valuation, steady profitability improvement, and a wide array of growth options yet to be fully executed, MercadoLibre remains one of my top growth investments now.
