Which stock in an e-commerce company will give you the most for your money?
Shopify (SHOP 1.39%) and MercadoLibre (MELI -2.49%) are two of the biggest names in e-commerce, but they work in different ways and have different strengths. Shopify is a well-known website that makes it simple for companies of all kinds to launch and expand their online retail platforms. MercadoLibre is one of the best places to get e-commerce platforms and payment processing services in the Latin American market.
Both stocks are down a lot in the current bear market, but their prices could go up significantly in the long run. But right now, which is the better buy? Read on to find out why two Motley Fool contributors have different ideas about which e-commerce stock will give you the best return on your money.
Shopify has taken advantage of the growth of the market.
Parkev Tatevosian: E-commerce was one of the industries that did very well in the early stages of the pandemic. That’s easy to understand. People wanted to stay away from the potentially deadly virus that was going around, so brick-and-mortar stores that were not necessary had to close for a while. Shopify, which helps businesses set up and grow their online presence, did very well in that setting. Shopify’s sales grew by 86% to $2.9 billion in 2020.
Still, Shopify’s sales were overgrowing even before the outbreak. Shopify’s income went from $24 million in 2012 to $1.6 billion in 2019. More importantly, Shopify has been successful in converting increased sales into cash. Between 2012 and 2021, Shopify turned a $2 million operating loss into a $269 million operating profit.
The truth is that people have been shopping online more and more over time. About 14% of U.S. retail spending is expected to happen online by 2020. This number is expected to go up to 22% in 2025. Shopify has benefited from industry expansion to increase sales and earnings and will continue doing so in the coming years.
According to its price-to-sales (P/S) ratio of 8.8, Shopify’s stock has probably never been cheaper. Long-term investors may want to buy shares of this e-commerce enablers stock now.
Still overgrowing and priced well.
Mr. Keith Noonan: MercadoLibre has been called the Amazon of Latin America because it is the biggest e-commerce site in the region, but it’s been looking even better lately. Amazon and many other e-commerce companies have seen their sales growth slow down in the last year, but MercadoLibre has continued to grow at an impressive rate.
Even though Brazil and other key geographic markets have been hit hard by inflation and other macroeconomic issues, MercadoLibre has continued to do well.
Currency-neutral, the total number of payments made through its payment processing platform went up by 76.4% from the previous year. The total value of goods sold through its e-commerce platform increased by 31.5% from the previous year to $8.6 billion in the same period. Overall sales went up 60.6% from the previous year to $2.7 billion because of these factors. The company’s net income increased by almost 146% through the first three quarters of its previous fiscal year to reach $317 million is even more astonishing.
Even though the company’s revenue and earnings have grown well, its stock has still been affected by the bear market. The company’s share price is down about 45% from its high point, and investors can buy into a promising company at a price that leaves much room for growth.
E-commerce and payment processing services are still in their early stages compared to markets like the U.S. and Western Europe. And MercadoLibre has a substantial long-term opportunity as more and more retail operations and spending move to online channels. MercadoLibre is a good buy because the company is still growing at a high-speed rate. It trades at about 74 times expected forward earnings and 4.1 times expected sales.
Which stock should be in your portfolio?
Shopify takes a more hands-on approach to e-commerce by giving businesses and people the tools they need to start their e-commerce stores. It’s also less likely to be affected by the risks of volatility that come with the Latin American market.
MercadoLibre, on the other hand, is still growing at an incredible rate and has had significant business results despite many problems. Soon, the company should keep getting good results, and its long-term potential is even more exciting.
On the one hand, if you only want to buy one of these stocks, it makes sense to compare their strengths and valuations to see which fits best with your portfolio goals. However, you should purchase both equities to understand more about the e-commerce sector.