How to Invest in MercadoLibre (MELI)

MercadoLibre (MELI 2.14%) is a leading e-commerce and financial technology (fintech) platform focused on Latin America. It operates six integrated e-commerce and digital financial services platforms: Mercado Libre Marketplace, Mercado Pago Fintech platform, Mercado Envios logistics service, Mercado Ads solution, Mercado Libre Classifieds service, and Mercado Shops online storefront solution.

The company combines elements of Amazon (AMZN 0.22%), PayPal (PYPL 1.54%), and Shopify (SHOP 0.15%) while focusing on fast-growing Latin American economies. These factors have enabled MercadoLibre to grow rapidly over the years, which has helped drive strong returns for its investors.

MercadoLibre believes it's just scratching the surface of its massive and growing market opportunity. Its growth potential likely has many investors wondering how to buy MercadoLibre stock. Here's everything you need to know about how to invest in the stock of Latin America's e-commerce and fintech leader.

How to invest

How to buy MercadoLibre stock

Those who want to invest in MercadoLibre stock must take a few steps before becoming shareholders. This four-step guide will show you how to add the e-commerce stock to your portfolio.

Step 1: Open a brokerage account

You'll want to open and fund a brokerage account before buying shares of any company. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time researching the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

You don't have to get there on the first day, though. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about its competitors, its balance sheet, how it makes money, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term. Continue reading to learn more about some crucial factors to consider before investing in MercadoLibre stock.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (MELI for MercadoLibre).
• Whether you want to place a limit order or a market order. (The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.)

Once you complete the order page, click to submit your trade and become a MercadoLibre shareholder.

Should I invest?

Should I invest in MercadoLibre?

Not every stock is right for all investors. With that in mind, here are some reasons why you might decide to invest in MercadoLibre:

• You understand what MercadoLibre does and how it makes money.
• You're seeking stocks with high revenue and earnings growth potential.
• Investing in MercadoLibre would help diversify your portfolio by adding an international stock.
• You don't need to invest in stocks that pay dividends.
• You're comfortable adding exposure to Latin America to your portfolio.
• You believe MercadoLibre can grow into its lofty valuation.
• You can easily afford to buy one or more shares without over-allocating to MercadoLibre (or are comfortable investing in fractional shares).

On the other hand, here are some reasons why you might decide against buying shares of MercadoLibre:

• You're not sure how MercadoLibre makes money or what it does.
• You prefer to invest in companies headquartered in the U.S.
• You're at or nearing retirement and need investments that generate income.
• You're concerned about MercadoLibre's high valuation.
• You already own several companies focused on the e-commerce and fintech sectors.
• The company's high stock price is more than you can afford with a reasonable allocation (and you'd prefer to avoid investing in fractional shares).

Profitability

Is MercadoLibre profitable?

Understanding a company's profitability is a key aspect of investment research. Profits are crucial to investors because a company's stock price tends to follow its profitability over the long term. Ideally, you want to see a company that's growing its profitability or on the road to making money.

MercadoLibre was solidly profitable as of early 2024. The e-commerce company recorded $987 million of net income on $14.5 billion of revenue, more than double what it earned in 2022 ($482 million on $10.5 billion of revenue). The company also produces lots of cash ($5.1 billion in net cash from operating activities in 2023), giving it money to fund loans, invest in capital projects, repurchase shares, and strengthen its balance sheet.

The company's strong and growing profitability enables it to fund its continued expansion and create long-term value for shareholders.

Dividends

Does MercadoLibre pay a dividend?

MercadoLibre didn't pay a dividend as of early 2024. The e-commerce company hasn't paid a dividend since late 2017, when it suspended its dividend to retain more cash to fund its growth. It originally initiated a dividend ($0.08 per share each quarter or $0.32 annually) in 2011. The company started paying dividends because of its confidence in its financial strength and ability to generate sustained cash flow to fund its operations.

The company could afford to reinstate a dividend. It's profitable and produces growing excess free cash, which has helped drive down its leverage ratio (it ended 2023 with a leverage ratio below 1.0 times, down from 1.5 times at the end of 2022). That's enabling it to return some money to investors by repurchasing shares, including over $350 million of repurchases in 2023.

ETFs

ETFs with exposure to MercadoLibre

Many people would rather be passive investors than actively pick a portfolio of stocks they have to manage. An easy way to be a passive investor is to use exchange-traded funds (ETFs) to gain exposure to a company, theme, or broader market.

According to ETF.com, 159 ETFs held 1.7 million shares of MercadoLibre in early 2024. The biggest holder was the Invesco QQQ Trust (NYSEMKT:QQQ), with more than 950,000 shares. However, the broader market ETF focused on tracking the Nasdaq 100 index had a relatively small weighting of MercadoLibre at 0.7% of its holdings.

Investors seeking an ETF with greater exposure to MercadoLibre have a couple of options worth considering, including:

• Global X MSCI Argentina ETF (ARGT 1.97%): This ETF provides investors with exposure to a single country (Argentina). It held shares of 25 companies in early 2024, led by MercadoLibre at 17.5% of its holdings. The fund offered direct exposure to this large Latin American country for a relatively low ETF expense ratio of 0.59%.
• EMQQ The Emerging Markets Internet & Ecommerce ETF (EMQQ 0.39%): This fund invests in Internet and ecommerce companies in emerging markets. MercadoLibre was the fund's fourth-largest holding in early 2024 at 7.1% of its net assets. The ETF had a 0.86% expense ratio.

Stock splits

Will MercadoLibre stock split?

MercadoLibre didn't have an upcoming stock split as of early 2024. The e-commerce company has not split its stock since going public in 2007.

The company is certainly a candidate for a stock split. Its share price was around $1,500 in early 2024, which is high for many investors. Splitting its stock would make it more accessible to investors.

Related investing topics

The bottom line on MercadoLibre

MercadoLibre is capitalizing on Latin America's economic growth by providing consumers and businesses with e-commerce and fintech solutions to enhance commerce in the region. Those catalysts should enable the company to continue growing its revenue and profits briskly, allowing it to grow value for its investors over the long term.

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