Is MercadoLibre, Inc. (MELI) a Good E-Commerce Stock to Invest In Now?

We recently compiled a list of the 10 Best E-Commerce Stocks To Invest In. In this article, we are going to take a look at where MercadoLibre, Inc. (NASDAQ:MELI) stands against the other e-commerce stocks.

An Overview of the E-Commerce Industry

According to a report by Forbes, the e-commerce industry is expected to grow to a valuation of $7.9 trillion by 2027 from $6.3 trillion in 2024. In 2027, 23% of retail purchases are expected to be made online, up from 20.1% in 2024.

An increase in consumer confidence, after a period of sluggish growth, has been a key catalyst in improving the position of the e-commerce industry. On July 30, Reuters reported that the consumer confidence index, in the US, increased to 100.3 in July after it was revised down to 97.8 in June. Previously, experts predicted the index to fall to 99.7 after reaching 100.4 basis points. Chief Economist, Dana Peterson, suggested that while consumers remain resilient they are concerned over rising prices and interest rates. However, despite an uncertain macroeconomic environment, e-commerce companies are taking advantage of the current consumer sentiment by reducing prices. Companies like Target have also revised their profits for FY 2024 as lowered prices have drawn more customers.

To shed light on the state of online retail, US Mastercard Economics Institute Chief Economist, Michelle Meyer appeared in an interview on Yahoo Finance on August 16. Online retail sales went up by 8.2% in July, compared to a 2.9% growth rate in July 2023. She further explains that personal finances, time efficacy, and the overall state of the labor market impact which sites consumers choose to shop from. Meyer also added that in the past quarter, the average individual in the United States saw an appreciation in wealth, which has a positive bearing on consumer spending and therefore online retail.

What Does the Competitive E-Commerce Landscape look like?

The future of e-commerce is unpredictable. Bans on products from China, questions about cheap labor, criticism over fast fashion, and the increasing use of technology are different forces shaping the industry. In the first quarter of 2024, the US pushed to ban TikTok in the country, which mongered fear among Chinese e-commerce sites such as Shein and Temu. In April, law-making agencies in the US suggested a ban on Temu over labor rights infringement. Moreover, on August 21, Shein sued Temu over copyright infringements. The former suggested that Temu stole the company's designs and trade secrets resulting in Temu losing money over every sale. Despite such, the founder of Temu, Colin Huang, stands as the wealthiest person in China with a net worth of $51.4 billion, as of August 22. You can also take a look at the best Chinese stocks to buy now.

On the other hand, e-commerce sites in the United States are trying to win against their competitors using advanced technology. Walmart, for instance, launched a generative AI search tool that customers can prompt and get a list of ideal products or items needed. For example, a customer who wants to throw a birthday party, but is unaware of the items needed, could use the search tool to save time. Similarly, Amazon launched Rufus, an AI shopping assistant, earlier this year. Rufus is capable of personally assisting a shopper and helping them find the right products. While we discuss technology, we cannot ignore eBay's magical listing tool for sellers backed by artificial intelligence. The tool can analyze images, categories, and titles to curate product descriptions, prices, and shipping costs. You should also read our piece on the latest AI news and analyst ratings you should not miss.

As the e-commerce industry grows, it is crucial to know which companies are pioneering the race. You can also read our piece on the best advertising stocks to buy according to short sellers.

Our Methodology 

To compile the list of the 10 best e-commerce stocks to invest in, we looked at holdings of e-commerce ETFs and screened for Internet Retail companies on the Finviz stock screener. We sorted our screen by market cap and looked at the 20 largest e-commerce companies. We picked stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.

Note: All pricing data is as of August 22.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A customer using their phone to access an online commerce platform.

MercadoLibre, Inc. (NASDAQ:MELI)

Number of Hedge Fund Holders: 84

MercadoLibre, Inc. (NASDAQ:MELI) is a prominent online marketplace founded in Argentina and headquartered in Uruguay. The company was founded in 1999 with the vision of becoming the largest e-commerce company in Latin America. Today, MercadoLibre, Inc. (NASDAQ:MELI) is present in 18 countries and has over 65 million buyers and 12 million sellers.

Consumers on MercadoLibre can shop for consumer electronics, automotive accessories, and home appliances. Merchants on the other hand can create a single account to sell to multiple markets. MercadoLibre, Inc. (NASDAQ:MELI) is one of the largest e-commerce companies in Latin America and reported gross merchandise value worth $45 billion in 2023. The company has grown its revenue at a compound annual growth rate of 28% between 2016 and 2023.

The company's strong e-commerce network is its economic moat. In 2023, MercadoLibre delivered 1.38 billion items, and 76% of them were delivered within 48 hours in the last quarter of 2023. Between 2019 and 2023, the company increased buyer engagement by 468%. The average number of items purchased per person on its platform grew to 7.1 by the end of 2023 from 4.4 in 2019.

Overall, the company’s share price has grown at a compound annual growth rate of 33% over the past 10 years. The company expects e-commerce penetration to rise in major markets including Latin America, China, the United States, and the United Kingdom.

Analysts are bullish on MELI and their 12-month median price target of $2,112 points to a 5% upside from current levels. Overall, MELI was held by 84 hedge funds at the close of Q2 2024 with total stakes amounting to $4.63 billion. As of June 30, Generation Investment Management was the largest shareholder with a position worth $822 million.

MELI is currently trading at 56 times this year's earnings estimate, higher than the sector's forward P/E of 15. While there's a premium here, the company’s growth trajectory cannot be ignored. Analysts expect earnings to grow 83% this year to $36 per share, and by 141% to $47 per share in 2025, from 2023.

Lakehouse Capital stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its May 2024 investor letter:

"The Fund’s largest position, Buenos Aires based e-commerce leader MercadoLibre, Inc. (NASDAQ:MELI), reported a robust result that once again came in ahead of analyst expectations. Net revenue grew 30% year-on-year in U.S. dollar terms to US$4.0 billion while operating margins came in at 12.0%, providing a healthy balance of growth and profitability. Its marketplace business proved resilient, with strength in Brazil and Mexico more than enough to offset weakness in Argentina, which contacted by roughly a third due to weak macroeconomic conditions exacerbated by the 50%-plus devaluation of the Argentine Peso in December 2023. Whilst the economic situation in Argentia remains severe, we are comfortable with the risk as not only has management proved very adept at handling the challenges to date, but post the devaluation, the risk is meaningfully reduced as Argentina now only contributes 13% of the company’s total operating income. Overall, gross merchandise value still grew at 20% year-on-year to $11.4 billion and we continue to see significant opportunities ahead given the relatively nascent penetration of e-commerce in the region."

Overall MELI ranks 5th on our list of the best e-commerce stocks to buy. While we acknowledge the potential of MELI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MELI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.