MercadoLibre: Scorching Growth vs. Rising Non-performing Loans
After the recent
AMZN) stock split,
another stock popped up on our radar in the ‘due for a stock split’
list: MercadoLibre (NASDAQ:
MELI). This Latin
American online commerce company closed on June 9 at $748.40. It’s
too highly priced for retail investors, despite trading at a
significant discount to its 52-week high.
MELI stock hit a 52-week high of
$1,970.13 in September 2021. Like other growth tech stocks, it has
consistently trended downwards in the last six months due to
factors such as rising
interest rates and higher inflation numbers, among
MercadoLibre has lost almost 40%
in 2022. However, the company’s fundamentals remain intact, and we
think this is an excellent opportunity to pick this stock at
MercadoLibre’s Q1 earnings
MercadoLibre operates in 18
countries in Latin America. In Q1 of 2022, the company’s net
revenues came in at $2.2 billion, up 67.4% compared to the
corresponding period in 2021. Operating income came in at $139
million, while net income was $65 million, indicating a margin of
2.9%. MercadoLibre reported a net loss of $34 million in the
MercadoLibre saw solid growth in
its credit and fintech portfolios. Mercado Credito, the credit
segment, closed Q1 with a portfolio of $2.4 billion, of which
53% were consumer loans, and credit cards accounted for 19%. The
loan portfolio totaled $1.7 billion at the end of 2021. The company
said almost 10 million users already have a credit line with
Its fintech active users stood at
35/8 million at the end of the March quarter. The engagement rates
for the users were higher for wallet transactions while credit
lines were offered to a widening user base.
One point of contention for
Mercado might be the rising NPLs (non-performing loans) in its
portfolio. The company said, “…between the accelerated pace of
originations in the fourth quarter and the mix shift into a higher
exposure to consumer credit, total NPLs as a percentage of the
outstanding portfolio is nearly 27.6%, up 330 basis points from the
seasonably low rates in the fourth quarter.”
Rising inflation and a recession
might cause NPL numbers to go up. Still, Mercado insists it will
not impact the profitability of interest-bearing loans, which have
been sustainable in recent quarters.
What next for MELI stock and investors?
Harsh market conditions are not
new to Mercado. The company had gone through the wringer in 2009 at
the peak of the financial crisis. In Q1 of 2009, it reported
revenues of $32.3 million. In the last 13 years, the company’s
revenue has risen at an annual rate of 38.36%.
Statista figures say that less
than 5% of sales in Latin America occur online compared to over 16%
in the US. So while there might be a recession in the offing,
there’s no denying that Mercado is best positioned across the
continent to weather it.
MercadoLibre stock is valued at
3.3x forward sales, which is quite reasonable for a growth stock.
The average analyst price target for this stock is $1,474.79.
That’s an upside of over 83% from current levels.
Historical Stock Chart
From Aug 2022 to Sep 2022
Historical Stock Chart
From Sep 2021 to Sep 2022