Excellent business performance

MercadoLibre has gone from strength to strength over the past few years, and the pandemic has helped accelerate growth. For example, in 2020, the company recorded revenues of $3.97bn, which was a 73% increase from the previous year. The company has built on this excellent performance in 2021, and after reporting revenues of $1.97bn in the third quarter, a 73% year-on-year rise, annual revenues are forecast to reach close to $7bn. I am also hoping the company gets a Christmas boost.

Such strong revenue growth has partially been reflected in the MercadoLibre share price. Indeed, since the start of 2020, the shares have risen nearly 100%. But at the same time, revenues have also risen around 230%, and it has managed to reach profitability. From this standpoint, the company’s growth is higher than the share price rise. This is a sign to me that the shares are too cheap and offers me evidence that this growth stock may even be able to double in value over the next year.

Valuation

The next indication that this growth stock could double in value is from its lower valuation than other companies in the e-commerce market. In many ways, this may seem odd, because MercadoLibre does seem fairly expensive on a pure valuation perspective. For example, it has a price-to-earnings ratio of around 300, far higher than the majority of other companies. But the firm has always prioritised growth over profits, and this has included significant investment into itself. As such, I’m not worried about such a high P/E ratio, as profits seem likely to grow from this point.

Secondly, due to its focus on growing revenues, it currently trades on a price-to-sales ratio of under 10. This can be compared to Shopify, the Canadian e-commerce firm, which has a P/S ratio of around 30. Both are seeing revenue growth at similar rates. As such, while I believe that Shopify is slightly overpriced, if MercadoLibre was to reach a similar valuation, it indicates that it could triple in value. Shopify also has a very similar P/E ratio. For me, this is evidence that MercadoLibre is underpriced, and could double in value next year.

What am I doing with this growth stock?

I already own MercadoLibre shares, and it currently makes up the top position in my portfolio. Although I worry about the risks of inflation, which has seen many growth stocks lose significant value, I feel like this is a short-term issue. With e-commerce still a largely unpenetrated market in Latin America, and MercadoLibre leading the way at the moment, I’m therefore optimistic. I will continue to add MercadoLibre shares at its current price.

The post A growth stock I think could double in 2022 appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in MercadoLibre. The Motley Fool UK has recommended MercadoLibre and Shopify. 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.

70% revenue growth

MercadoLibre (NASDAQ: MELI) has impressed me repeatedly to the extent that it now makes up the second largest position in my portfolio. But while the MercadoLibre share price has managed to rise 24% over the last year, it has fallen over 13% over the past three months. I feel this dip makes this an excellent time to buy.

For one, the Latin American e-commerce company is seeing huge growth rates. This was shown in its recent Q3 trading update, where it recorded net revenues of $1.9bn, a 73% year-on-year rise. The company also maintained its profitability, reaching net income of over $95m, significantly higher than the $15m recorded in the same period last year. While this still places the company on a very high price-to-earnings ratio of over 200, the firm is prioritising growth over profits, and therefore, I expect that profits are likely to continue rising over the next few years. This is a very good sign in any growth stock.

I’m also impressed by the company’s diverse revenue streams. Indeed, while the bulk of revenues come from the e-commerce business, MercadoLibre has a growing fintech service, known as Mercado Pago. In the third quarter, fintech revenues increased over 60% year-on-year to reach $632m. This should continue to supplement the very successful e-commerce business. I feel that this helps differentiate MercadoLibre from other e-commerce companies.

There are risks with it, however. For example, with a price-to-sales ratio of over 12, the stock isn’t cheap, and high growth is already factored in. The high rate of inflation will also cause issues, especially as MercadoLibre has a lot of debt. Despite these issues, its potential is too difficult to ignore, and therefore, I may buy more.

A ‘growth’ stock with limited growth

The Beyond Meat (NASDAQ: BYND) share price has suffered considerably over the past year, falling 33%. This has mainly been due to a series of disappointing trading updates. For example, in the recent Q3 update, it posted revenues of $106.4m, just a 13% rise from the same period last year. Gross profit margins also decreased from 27% to 21.6%, primarily due to increased transportation costs and higher warehousing costs. This also led to a larger-than-expected loss of $54.8m.

This had led to fears from some analysts that the company is “reaching market saturation faster than expected”. This isn’t a good sign for any growth stock. It also led to several brokers cutting their price targets for the stock. In fact, JP Morgan has recently implied that it has a 36% downside. 

Of course, there’s potential that the stock can rebound. This is especially true given that the global market for plant-based foods could see fivefold growth by 2030. But at the moment, Beyond Meat seems to be falling behind competitors. Therefore, I’ll wait for a further dip, or a change in the company’s fortunes before buying.

The post A beaten-down growth stock to buy and 1 to avoid appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in MercadoLibre. The Motley Fool UK has recommended Beyond Meat, Inc. 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.

Telehealth provider

Teladoc (NYSE: TDOC) saw its share price soar during the pandemic as many people in the US opted for virtual healthcare. Nonetheless, its performance has been far weaker in recent months, and year-to-date, it’s fallen over 20%. This is because investors have started to worry about the company’s post-Covid prospects. But in my view, its current share price of around $150 doesn’t reflect its huge potential.

Indeed, even after Covid, the company is seeing incredible growth. For example, in the most recent Q3 trading update, revenues reached $522m, which was an 81% rise year-on-year. This means that full-year revenues are expected to reach over $2bn. This gives the company a price-to-sales ratio of around 10. While this does not indicate a really cheap valuation, it is undervalued in comparison to many other growth stocks. For instance, Shopify trades on a price-to-sales ratio of around 37, even though its revenue growth is slower than Teladoc’s. Accordingly, if Teladoc keeps growing revenues at the current rate, I feel its share price will be able to rise as well to reflect this.

However, there are risks. For example, in the third quarter it saw a net loss of nearly $85m. While many growth stocks are unprofitable, it is still a risk worth considering. It is also a factor that could prevent the stock from surging in price. If revenue growth slows, the price could also fall heavily.

But I am confident in the future and therefore, Teladoc makes up part of my portfolio. After the company signed recent agreements with CVS Health and Centene, I can also see the revenue growth staying at the same rate. This means that the prospect of the stock soaring seems feasible to me.

A Latin American growth stock

MercadoLibre (NASDAQ: MELI) is the other growth stock I feel could soar in the coming years, especially after its recent dip. This dip has partly been due to worries of supply chain disruption in the e-commerce market, a factor which may strain profits. Nonetheless, while this is certainly a risk, the prospects of this Latin American e-commerce stock look too good to ignore.

In fact, in the company’s Q2 trading update, it recorded revenues of $1.7bn, a year-on-year increase of 102.6%. It also managed to make a small profit of $68.2m, even though the company is prioritising growth over profits. These excellent results were boosted by the company’s fintech segment, Mercado Pago, which now has around 100m unique active users. This offers a new dimension to the company, something I feel will contribute towards larger revenues and profits in the future.

As a market leader in e-commerce in Latin America, which is still fairly unpenetrated, I also feel that the company’s growth prospects are far better than many of its competitors, including Shopify and Amazon. Therefore, if the company continues with its 100% revenue growth, I believe the share price will rise significantly as well. As such, I am tempted to buy more shares. 

The post 2 technology growth stocks I think are set to soar appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in MercadoLibre and Teladoc Health. The Motley Fool UK owns shares of and has recommended Amazon, MercadoLibre, Shopify, and Teladoc Health. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. 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.

Latin American e-commerce giant

MercadoLibre (NASDAQ: MELI) has experienced incredible growth over the past few years, with its 2020 revenues reaching US$3.97bn. The start to 2021 has been even better. In fact, in its second-quarter trading update, it recorded revenues of $1.7bn. This is a year-on-year increase of 102.6%. Unique active customers also grew nearly 50% year-on-year to 75.9m. This shows that the company is growing, and there seems no signs that this growth is slowing down.

Furthermore, the company has also reached profitability. Indeed, in the second quarter, it reported net income of $68.2m. Although this puts the stock on a very high price-to-earnings ratio of around 280, it’s also important to mention that the company is currently prioritising growth over high profits. This makes me hope profits will be able to increase over the next few years, and while still expensive, I feel that MercadoLibre stock has got room to rise. This is especially true so to the rapidly growing e-commerce market in Latin America.

The current dip in the MercadoLibre share price (it has fallen 19% in the last month) also makes the e-commerce giant a more tempting buy. This dip has mainly been due to rising bond yields, alongside some shareholders taking profits. Rising bond yields are a very legitimate concern, especially because the company has $2.4bn of debt, and larger interest payments may be the final result. But the company is still performing excellently, and I feel that there is significant upside potential. Therefore, I may add more shares to my portfolio soon.

An EV growth stock

I’ve remained wary of EV growth stocks due to their high valuations. But after falling 33% year-to-date, I feel that NIO (NYSE: NIO) stock now offers decent value. This is after the stock has managed to rise nearly 70% over the past year.

The reason I like NIO over other EV stocks is because of its current growth. In fact, in its second-quarter trading update, it reported revenues of $1.3bn, an increase of 127% year-on-year. As such, it has even higher growth rates than MercadoLibre at the moment, which is a very good sign. In September, the company was also able to deliver over 10,000 vehicles, an increase of 125% year-on-year. This demonstrates that the semiconductor shortage has not impacted the company too severely, and it’s still managing to satisfy the high demand.

My one issue with NIO is its current unprofitability, and the lack of a clear route to making profits. Indeed, in the second quarter, it reported a net loss of around $90m. The rising competition in the EV market may also hinder it and be an obstacle to the company reaching profitability. Even so, the potential is very clear, and while I prefer MercadoLibre as a growth stock, I’m certainly keeping a keen eye on NIO as well. If it dips any further, this could be a buy for me.

The post 2 beaten-down growth stocks to buy now appeared first on The Twelfth Magpie.

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Stuart Blair owns shares of MercadoLibre. The Motley Fool UK owns shares of and has recommended MercadoLibre and NIO Inc. 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.

Why am I avoiding Amazon shares?

There were a number of positives to take away from Amazon’s latest trading update. Indeed, in comparison to last year, sales were up 27% to over $113bn. Net income also increased by over $2bn. But despite these strong results, the Amazon share price fell by around 8%. So, what are the reasons for this?

In the company’s third-quarter guidance, it expected that net sales would be between $106bn and $112bn. This represents far slower growth than it has previously achieved, and investor confidence was dampened as a result. I feel that the reopening of physical stores is also likely to cause a slowdown in this growth. This is a slightly worrying sign for any growth stock.

Accordingly, I believe that there is now little upside to the Amazon share price. In fact, the company has a high price-to-earnings ratio of over 50. This indicates that Amazon shares may be overvalued, especially if growth is starting to slow down. So, while many investors are using the company’s recent dip to buy shares, I’m staying away.

The e-commerce growth stock I’d buy instead

MercadoLibre (NASDAQ: MELI) is an e-commerce company that operates within Latin America. The company performed particularly strongly in 2020, with revenues of nearly $4bn. This is around 75% higher than 2019.

But even as physical stores open up, growth is showing no signs of slowing down. In fact, in yesterday’s second-quarter trading update, the company saw revenues of $1.7bn, up 102.6% year-on-year. The number of active customers also grew by nearly 50% to reach 76m. Unlike many other tech companies, MercadoLibre also posted a profit, and net income was $68.2m. These are all extremely promising signs for a growth stock and the MercadoLibre share price was able to rise over 10% on the day.

In comparison to Amazon, I also feel there is more room for future growth. For example, Latin America is still a fairly underpenetrated market, and e-commerce is growing at a rapid pace. As MercadoLibre is the market leader in the area, it seems a prime beneficiary. Furthermore, I am also impressed by the company’s expansion into fintech over the past few years, with Mercado Pago. In the recent trading update, fintech revenues were able to rise around 90% year-on-year to $588m. This gives the company another dimension, and I feel that it will be able to propel growth.

One risk with MercadoLibre is its current valuation, however. In fact, it currently trades with a price-to-earnings ratio of over 500, demonstrating that future growth is already priced in. If the company disappoints on this, the share price is set to fall rapidly.

But so far, the company is excelling, and I believe profitability should increase over the next few years. This is why I initially bought this e-commerce growth stock, and after these earnings, I’m tempted to add more to my portfolio.

The post I’m avoiding Amazon shares in favour of this e-commerce growth stock appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares of MercadoLibre. The Motley Fool UK owns shares of and has recommended Amazon and MercadoLibre. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.