1 Monster Growth Stock You'll Regret Not Buying on the Dip

The S&P 500 is still down about 12% this year, but there have been some signs of increasing health in the market. The S&P 500 is up 8% over the past month, and many companies have been reporting better-than-expected or healthy earnings results in the second quarter. Investors who were holding their breath are now breathing a little easier, and many stocks that plummeted at the beginning of the year are now creeping back up slowly. 

That’s wonderful for shareholders, but it also means that opportunities to buy on the dip are becoming more limited. MercadoLibre (MELI 2.41%) stock was down as much as 55% this year. After gaining 50% over the past month, it has now fallen 21% in 2022. This may be your last chance to buy this monster growth stock on the dip.

What macroeconomic challenges?

MercadoLibre, a Latin American e-commerce giant, demonstrated spectacular growth throughout the early stages of the pandemic, with several consecutive quarters of triple-digit revenue growth year over year. But although one might say its current performance has slowed down, high double-digit growth is hardly disappointing as the company faces tough comps from last year.

In the 2022 second quarter, facing those tough comps in addition to global macroeconomic challenges and inflation, MercadoLibre posted a 57% year-over-year increase in revenue to $2.6 billion. Total payment volume (TPV) increased 83%, and gross merchandise volume (GMV) increased 27% on a currency-neutral basis. The GMV number was in line with pre-pandemic growth, but as management noted, it was over a much higher base of $8.5 billion. Net income nearly doubled year over year to $123 million.

The company originally developed its digital payments business to provide greater access to its e-commerce platform for its highly underbanked population. But it has emerged as a complete and growth-generating segment on its own, with more than $30 billion in TPV. Specifically, its digital payments volume increased 189% on a currency-neutral basis. It’s become much more than a simple peer-to-peer payments app, offering savings and asset management features. It has also led to a credit business, which is contributing to expanded margins for the company. The total loan book increased 230% over last year to $2.7 billion. In the second quarter, fintech segment revenue increased 113%, surpassing $1 billion for the first time. This is an exciting opportunity within the overall framework because the market for fintech services is just getting started, and MercadoLibre has a first-mover’s edge.

The massive growth opportunity

The decision to branch out into fintech to support its core business also paved the way for the company to seize new opportunities beyond its e-commerce platform, in an Amazon-style growth model. In MercadoLibre’s case, it’s using its resources to invest in small tech companies and expand its influence and network.

Even within its current model, the opportunity is enormous. MercadoLibre had 107 million unique active users in the first half of the year in a region with 600 million people. Nearly half of the adult population in these countries is underbanked, but the pandemic drove higher adoption of digital transactions, making MercadoLibre’s services all the more valuable. E-commerce is still a small percentage of total sales in Latin America, giving MercadoLibre plenty of organic growth opportunities as well.

Should you buy MercadoLibre stock?

MercadoLibre stock still isn’t cheap even, as low as its price is right now. Shares trade at more than 150 times forward one-year earnings and almost seven times trailing-12-month sales. Investors are confident about this stock, and between the market opportunity, its first-mover’s edge, and its expanding features, it appears to have massive growth potential. Investors may want to consider adding MercadoLibre shares to their portfolios.

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 in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.

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