Has MercadoLibre stock reached a once-in-a-decade buying opportunity?

Many investors are focused on the stress in the US market today – a combination of rising interest rates and an increasingly challenged consumer. Still, the US is not the only place where investors can hunt for good stocks. Many people fail to look abroad to see what opportunities there may be.

MercadoLibre (MELI 1.06%) is the largest e-commerce player in Latin America, serving 18 countries in the region. Unfortunately, the stock has been wiped out along with other e-commerce stocks, even though the business has grown at a pace few domestic companies can claim.

As a result, investors should take a close look at MercadoLibre, as this could be a once-in-a-decade buying opportunity.

The fintech department has been on fire

While MercadoLibre is known for its e-commerce segment (which includes an online store plus a shipping logistics division), what excites me the most is the fintech business. Mercado Pago’s digital wallet is a juggernaut and continues to see massive consumer adoption.

Data source: MercadoLibre.

While the user growth is impressive (this was the most users the company has added in the last two years), the total payment volume (TPV) is even better. Marketplace volume (how much money was spent on a MercadoLibre platform) increased 39% year-over-year, and 99% of all transactions used Mercado Pago. Volume outside the marketplace (peer-to-peer or peer-to-merchant type transactions) was up 122% year-on-year.

Another bright light in the fintech division is Mercado Credito, its consumer credit division. The growth here has been astonishing and the portfolio has increased by almost 150% in volume since last year. This increase helped MercadoLibre increase its fintech cap rate (how much money it scrapes from each transaction) by 0.66% to reach 3.81%. While demand for this product is strong, management said it is choosing to slow growth and “prioritize risk management and margin over growth.”

This level of leadership maturity shows impressive self-control as management is unwilling to potentially destroy a great company just for growth. I believe many American companies can learn from this outstanding management team.

Others can take some notes from MercadoLibre

While fintech may be on top, the e-commerce division isn’t doing too badly either. Just like any other e-commerce company, MercadoLibre has had to deal with tough comparisons due to the peak it saw during 2020 and 2021.

Nevertheless, gross merchandise volume (GMV) rose by 32% year-on-year, indicating that the value of goods sold through the platform is increasing. In addition, MercadoLibre gets a 17% cut from each sale, up 14.3% year over year. Overall, the trading division grew 33% year over year to $1.5 billion in revenue. While this isn’t the meteoric rise of 115% to $1.2 billion the fintech wing experienced, it’s still respectable.

MercadoLibre is also becoming more efficient. Operating margin rose from 8.6% last year to 11% this year, although net income margin fell from 5.1% to 4.8% due to tax and currency depreciation in Argentina (where MercadoLibre is based).

So MercadoLibre is a fast-growing company whose expenses aren’t spiraling out of control. You’d think the stock would be somewhat flat for the year, but you’d be wrong. Shares are down over 36%, and the price-to-sales value has reached levels not seen in over a decade.

MELI PS Ratio data by YCharts

As you can see from the graph, MercadoLibre reached an absurd valuation level in 2021 and was deservedly sold. Now it has crashed through its average range, trading at levels last seen at the depths of the 2009 Great Recession.

Another head-scratching takeaway is that fintech companies are more efficient and therefore command a higher premium. However, as MercadoLibre’s growth has become an even split between commerce and fintech, its valuation has cratered.

Wall Street also agrees that MercadoLibre is undervalued. Analysts’ average price target for the stock is $1,300, implying an upside of nearly 50%. There’s no such thing as free money in the stock market, but MercadoLibre’s stock is about the closest there is to meeting that description.

I think MercadoLibre is an excellent buy here, and investors shouldn’t wait for others to notice this stock.