A forgotten growth stock I’m considering buying in April

With MercadoLibre’s revenues having tripled since 2020, Stephen Wright sees an opportunity in a growth stock investors seem to have forgotten.

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MercadoLibre (NASDAQ:MELI) was very much the growth stock of 2020. The company’s share price reached $1,675 by the end of the year.

Since then, investors have lost interest – at least, if the global search volume on Google Trends is anything to go by. But with the stock still around the $1,500 mark, I think it’s worth a closer look.

Latin America

MercadoLibre is an e-commerce company with operations across Latin America. Its functions include an online marketplace, a payment processor, a shipping business, and lending division.

Before going any further, it’s worth pointing out the big risk with the stock. The company generates around 22% of its revenues from Argentina – a country with one of the highest rates of inflation in the world.

As investors in Airtel Africa will know, foreign currency exchange rates can be a significant issue. And it’s one anyone considering buying shares in MercadoLibre ought to take seriously.

Nonetheless, the firm’s been making impressive progress on a number of fronts since 2020. So much so that the stock now looks attractive to me at today’s prices.

Growth

Back in 2020, MercadoLibre looked like a company with impressive growth prospects. Since then, the business has seen some significant expansion in all of its major divisions.

Gross merchandise volume – the amount of stuff sold on its marketplace – has grown from $20.9bn in 2020 to $44.75bn in 2023. And significant growth in Argentina implies some resistance to inflation.

In the payment processing division, total payment volumes reached $182.8bn last year. That’s a 266% increase compared to the $49.9bn figure from 2020.

The logistics business has also grown impressively. In 2023, MercadoLibre shipped around 1.4bn items – roughly double the 649m it managed in 2020.

Valuation

When MercadoLibre shares were trading around the $1,500 mark in 2020, I thought they were clearly overvalued. In fairness, that was a different time – interest rates were much lower, for one thing. 

Now though, things look different to me. The company’s market-cap is still roughly the same, but the firm’s revenues have more than tripled from $3.97bn to $14.47bn.

As a result, the stock trades at a price-to-sales (P/S) ratio of around 5. That’s much more attractive than the 20 multiple MercadoLibre shares were trading at in 2020. 

The company’s still investing significantly to build out its logistics operations, which is weighing on net income. But the equation for investors is starting to look much more attractive, in my view.

Time to buy?

I think MercadoLibre’s a stock that’s largely gone under the radar for investors since the pandemic died down. But there’s no obvious reason why this should have been the case.

The stock trades at the same price it did in 2020, but the business is now in a much better shape. I wouldn’t have bought it back then, but I’m certainly considering adding it to my portfolio now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc and MercadoLibre. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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