Reasons Why You Can't Miss This Company
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When it comes to global online shopping stores, Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) top the list. But when it comes to a shopping store in Latin America, MercadoLibre (NASDAQ: MELI) beats both its competitors. The company is often referred to as the eBay of Latin America, due to similar business models of both the companies.
MercadoLibre and eBay are not retailers unlike Amazon. Both the companies make commissions by matching the buyers and sellers, whereas Amazon is involved in earning a profit margin on every sale it makes. It’s because of this both eBay and MercadoLibre don’t face stiff competition from Amazon. As far as eBay is concerned, it tried to enter the Latin American market a few years ago, but wasn’t able to snatch a respectable market share from the already established MercadoLibre. In the end, eBay ended up buying an 18% stake in MercadoLibre to reap the benefits of a fast growing economy.
Amazon recently announced that it will also enter the Latin American market. There is no doubt the global giant is a well reputed online shopping store, but snatching away the market share of a 13 year old auction website, could prove to be a daunting task for any company. In addition to just matching buyers and sellers, MercadoLibre has a division, MercadoShops, which is also involved in creating and marketing online shopping websites for small and medium enterprises. Also the company has its trusted online payment system MercadoPago, just like eBay’s PayPal, giving MercadoLibre an edge over its competitors.
It’s also worth mentioning that, Amazon will not only try to take away market share from the online auction website, but also from the local retailers. In a similar bid, global retailers are not able to enter India due to the stiff opposition from politicians, and many believe that Amazon might face similar headwinds while trying to enter Latin America.
|
Company |
P/E |
PEG |
ROI |
EPS growth this year |
Net Profit Margin |
|
MercadoLibre |
39.56 |
1.4 |
39.53% |
37.04% |
27.28% |
|
Amazon |
313.5 |
9.91 |
3.29% |
-45.82% |
0.6% |
(Source: Finviz)
On checking out the fundamentals of both the companies, we found out that Amazon was hugely overpriced, compared to MercadoLibre. We believe that with a EPS growth of negative 45.8% this year, Amazon’s valuations are not justified. For valuations to match Amazon would have to either perform greatly or the stock price has to come down significantly. Additionally, MercadoLibre has better Returns on its investments along with a massive net profit margin. A contrarian investor might find some good in Amazon, but as far as conventional investing is concerned, MercadoLibre beats Amazon in the numbers game.
Also taking a look at the 5 year returns of both the stocks, MercadoLibre comes out to be the winner with a massive 243.8% returns.
MercadoLibre is trading at lower valuations than its competitor. Also the company has better valuations and is well established in the country. The stock has been giving stellar returns and we believe that with the growth of the e-commerce awareness in the general public, the company would benefit greatly. Analysts are bullish on the stock with a price target of $102, and so are we. The company seems to be thriving, and we think that the stock has nice headroom to grow.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and MercadoLibre. Motley Fool newsletter services recommend Amazon.com, eBay, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
