MercadoLibre: A Potential Growth Stock for Investors

If you’re content with average market returns, investing in an S&P 500 index fund might suffice. However, for those aiming to outperform the market, individual stock selection is essential, which can be challenging.

Investors searching for stocks that could beat the market may want to consider MercadoLibre (NASDAQ: MELI).

Understanding MercadoLibre

Unfamiliar with MercadoLibre? You’re not alone—its business operates primarily in South America.

Yet, it is a significant player in the region’s e-commerce landscape. MercadoLibre dominates markets in Brazil, Mexico, and Argentina, and is often called the “Amazon (NASDAQ: AMZN) of Latin America.”

Beyond e-commerce, the company also functions as a major payment processor, similar to PayPal, and provides logistics services. Increasingly, it’s becoming an advertising platform.

Last fiscal year, MercadoLibre generated $20.8 billion in total business, converting over $2.6 billion into net operating income, marking increases of 37% and 19%, respectively. Analysts project continued strong performance this year and next, despite broader economic stagnation in the region.

Data source: StockAnalysis.com. Chart by author.

Latin America: A Market on the Rise

Latin America is at a similar crossroads as North America was during the late 1990s and early 2000s.

Back then, the internet was growing, and high-speed connections were becoming the norm. The first smartphones were on the horizon, positioning mobile devices for rapid adoption.

This technological revolution paved the way for online shopping and digital payments that fueled Amazon’s rise.

Image source: Getty Images.

There are differences between North America then and South America now. Notably, South America operates as a “mobile first” market, where smartphones serve as the primary internet connection for many consumers. According to digital marketing company Siprocal, over 270 million residents in Latin America (around 58% of the population) are mobile-first users.

As connectivity improves, online shopping is expected to follow suit.

Americas Market Intelligence (PCMI) estimates the region’s e-commerce sector will grow by 21% this year, with similar rates projected until at least 2027. For context, GSMA expects smartphone penetration in Latin America to rise from 80% of mobile users in 2023 to 92% by 2030. In fact, technology market research firm Canalys reported that a record 137 million smartphones were shipped to Latin America last year.

As technology spreads, users are likely to engage more with their devices, creating additional opportunities for growth.

The Time to Invest is Now

U.S. investors appear to recognize this potential, as evidenced by MercadoLibre’s impressive 300% increase from last year’s low, reaching new highs.

However, prospective investors shouldn’t be deterred.

MercadoLibre’s trajectory mirrors that of early Amazon. Just as Amazon defied expectations, continuing to expand despite doubters, MercadoLibre is already profitable and well-positioned for future growth. Historical patterns show that technological progress can outlast economic challenges.

With ongoing concerns about economic stability due to potential tariff impacts, particularly from the U.S., it’s vital not to underestimate the resilience of capitalist markets. Consumers often prioritize convenience and pricing, as seen with Amazon during the 2008 financial crisis. South American consumers are similarly inclined toward online shopping.