The best time to buy growth stocks might be when no one else is. Warren Buffett has said to be greedy when others are afraid, and fearful when others are greedy. This current volatile stock market, where growth stocks have tanked, is full of opportunity.
Many growth stocks come with a lot of risk, which is precisely why they are down right now. But others are already dominating their industries and are profitable and, at current prices, look very attractive. My vote for the fastest growing stock to buy right now goes to the Latin American e-commerce giant. free market (MELI -4.22%).
A great opportunity
MercadoLibre operates an e-commerce business similar to Amazon. Active buyers increased to almost 41 million in the second quarter of 2022, a fraction of the Latin American population of more than 650 million.
MercadoLibre currently serves 18 of the 33 Latin American countries, and its three main markets (Argentina, Brazil and Mexico) are constantly growing. According to Statista, e-commerce retail sales in Latin America increased from $50 billion in 2019 to $85 billion in 2021. They are expected to reach $160 billion in 2025.
MercadoLibre has a large market share. Gross merchandise volume (GMV) increased 26% year over year in the second quarter. For comparison, Amazon product sales increased 2.5% in the second quarter.
MercadoLibre also offers fintech services, which grew out of its e-commerce business. Latin America has a traditionally underbanked population, and MercadoLibre offers digital payment options through its MercadoPago app, which is similar to PayPalThe digital payment application of.
This has expanded into a significant range of business services and a robust personal finance application that includes asset management services and credit products. These services are growing at a rapid rate. Total payment volume (TPV) increased 84% year over year in the second quarter. However, the POS in the MercadoPago app increased by 167%.
MercadoLibre certainly faces competition. For shopping, at least one strong candidate is limited seaShopee’s shopping app, which is growing in popularity in Brazil. It also operates in Mexico, Colombia and Chile.
As for competition in fintech, according to the Inter-American Development Bank, Latin American fintech platforms grew 112% from 2018 to 2021 to almost 2,500, many focused on digital payments and digital loans. Some of these work with MercadoLibre, but others offer competing services. by Warren Buffett Berkshire HathawayFor example, you have positions in StoneCo Y NuBanktwo Latin American fintechs.
As one of the largest and oldest, MercadoLibre has an advantage over newcomers. But it is focused on delivering an enhanced experience, capitalizing on the best technology to maintain its dominant position.
A growth stock that is profitable
MercadoLibre’s revenue increased 57% year-over-year in the second quarter on top of growth of 103% last year and 123% the year before. Net income was $123 million, or nearly double last year’s $68 million.
Gross margin improved from 44.3% last year to 49.4% this year, mainly due to the benefits of scaling as sales continue to grow. The profit margin improved from 4% to 4.7%. It ended the second quarter with more than $2 billion in cash.
The company doesn’t post positive net income every quarter, but it is carefully balancing growth investments with earnings releases. As it continues to post revenue increases, it should benefit from even stronger economies of scale and be able to fund new growth ventures while remaining profitable.
A low-priced entry point
Finally, MercadoLibre shares fell 50% in the last year. The stock trades five times after 12-month sales, which is a very reasonable valuation for a profitable growth stock. This is a classic opportunity to buy an excellent stock on the downside.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions and recommends Amazon, Berkshire Hathaway (B shares), MercadoLibre, PayPal Holdings, Sea Limited and Stoneco LTD. The Motley Fool recommends the following options: Long $200 January 2023 Call Options on Berkshire Hathaway (B-Shares), Short January 2023 $200 Put Options on Berkshire Hathaway (B-Shares), and Short $265 Call Options on Berkshire Hathaway (B-Shares). January 2023 in Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.