Missed Amazon? Buy MercadoLibre stock instead

Many investors lament the loss Amazon. Few predicted it would evolve from an online bookstore into a retail giant. No one could have predicted that it would be a pioneer in the cloud computing industry.

The list of regrets includes Warren Buffett, who said he was “too stupid” to invest before buying stocks in 2019. This shows that missed opportunities are also a problem for the most experienced investors.

Fortunately for investors, Amazon is not the only e-commerce conglomerate, and others have emerged outside North America. Thanks to its success, a second-chance e-commerce company has emerged in Latin America MercadoLibre (NASDAQ: MELI).

MercadoLibre will be established

Marcos Galperin, a Stanford student from Argentina, founded MercadoLibre in 1999 while still studying for his MBA. Galperin aimed to build an everyday shopping platform in his home region.

It must be admitted that Latin America is a difficult place to do business. However, rather than hindering MercadoLibre, the challenges made it: stronger business.

Since Latin America is primarily a cash-based society, Galperin founded Mercado Pago to provide financial products to help cash-based customers shop online. Since many of these customers do not have a bank account or credit card, these products quickly became popular, so popular that Mercado Pago extended the service to people who do not shop on MercadoLibre.

Similarly, the lack of reliable shipping options led to the creation of Mercado Envios. This segment helped companies fulfill and ship orders. It also led to one-day and two-day shipping in many areas, a service previously unavailable in Latin America.

MercadoLibre investment case

Amid this growth, MercadoLibre launched its IPO in August 2007. Given that a $1,000 investment at the time is now worth $61,000, investors may assume they missed an opportunity to buy this stock.

Nevertheless, with a market capitalization of around $90 billion, this represents less than 5% of Amazon’s current size. While investors have no guarantee that the Internet and direct marketing retail stocks will be able to reach a $1.9 trillion market capitalization like Amazon, MercadoLibre has some potential to reach that point, and be it may even exceed it.

MercadoLibre’s first market, Argentina, has become an example of how the company can succeed regardless of business conditions. Mercado Pago has helped Argentines deal with the country’s massive inflation by investing in Mercado Fondo investment accounts.

Moreover, now that inflation in Argentina is falling, MercadoLibre could benefit from an increase in sales activity, provided that reforms in the country help it become richer.

Finance MercadoLibre

Additionally, the growing middle class in other Latin American markets has improved the company’s financial performance. In the first quarter of 2024, revenues of $4.3 billion increased 36% compared to the year-ago quarter. This occurred with a 20% increase in gross merchandise volume and a 35% increase in total payment volume, demonstrating the continued success of MercadoLibre’s two largest businesses.

What’s more, first-quarter net income of $344 million is up 71% over the past year.

While the company did not provide forward-looking guidance, the consensus estimate is for revenue growth of 33% and net profit growth of 77%. So its improvements are not a one-off phenomenon, and given MercadoLibre’s resilience, its growth is likely to continue for some time.

Admittedly, with a price-to-earnings (P/E) ratio of around 78, it’s a more expensive stock than Amazon, which earns 52 times more. However, investors should remember that Amazon grew its revenue by just 13% in the most recent quarter. Thus, by paying a 50% higher valuation, MercadoLibre investors receive an almost threefold increase in revenues, which may justify such a premium.

MercadoLibre as a second chance stock

Given its smaller size and ability to thrive in volatile emerging markets, MercadoLibre looks like a viable second-chance company for Amazon.

MercadoLibre has emerged as a leading e-commerce and fintech company in the volatile but rapidly growing Latin American region. The company has helped Latin Americans overcome challenges such as online shopping without credit cards and shipping products faster.

Moreover, as its customers have become wealthier, online shopping has increased, meaning the company has positioned itself to thrive in a variety of environments. Given that MercadoLibre has strong growth potential, it could serve as a second-chance stock for those looking to generate profits in the e-commerce industry.

Is it worth investing $1,000 in MercadoLibre now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Will Healy has positions at MercadoLibre. The Motley Fool covers and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.