You can see why investors get so excited when we talk about the potential for Latin America, especially since a larger percentage of the population still do not have access to an organized banking structure. On the flipside, a rising percentage of the population has access to the internet, specifically on a mobile device. This makes this a perfect region for Fintech platforms to disrupt the traditional banking sector. Today we have a comparison between two FinTwit favorites: MercadoLibre (NASDAQ:MELI) and StoneCo (NASDAQ:STNE). Which one will be the better investment a decade from now?
MercadoLibre (NASDAQ:MELI): MercadoLibre rose to prominence over the past five years or so, by rapidly expanding its eCommerce and payment services brand across South America. The stock has been on absolute fire if you were able to get in early, with five-year returns of nearly 650%. But South America has struggled during the COVID-19 pandemic, and major economies like Brazil have tumbled. So too has MercadoLibre’s stock, which is currently trading at about 50% off of its 52-week highs. Large pullbacks are nothing new for MELI, but the stock looks like it is trading at a discount. In November, MercadoLibre sank by nearly 20%, after a surprise stock offering that helped the company raise $1.5 billion USD. The market was also hit by rising interest rates which of course limit future earnings potential for high growth companies. But nothing has changed fundamentally about MercadoLibre. It’s payment service MercadoPago recently introduced the ability for its users to invest in cryptocurrencies, which helps bring decentralized finance to some of the lowest socioeconomic regions in the world. Shares were trading at over $2,000 per share just a few months ago, and as one of the strongest eCommerce brands in the world, this looks like a great opportunity to buy low.
StoneCo (NASDAQ:STNE): StoneCo gained popularity when two of the more influential investors bought into the company: Warren Buffett and Cathie Wood of Ark Invest. The stock has gone on to drop by 80% year to date, and 77% over the past 52-weeks. What has changed for StoneCo? A disappointing third quarter earnings report saw the stock sell off by nearly 40% the next day. There were some issues with its income statement, mainly its investment in Banco Inter, one of the largest banks in its home market of Brazil. Unfortunately during the pandemic, Banco Inter’s stock tanked, so this showed up as an unrealized loss on StoneCo’s financials. But let’s look at the good for last quarter: revenues grew 57% year over year and had 1.4 million active payment customers, which more than doubled the number in 2020. StoneCo also had an issue with Pax Global, the provider for its payment terminals which it has now sorted out. This did result in the FBI raiding one of Pax Global’s offices, which also brought on a short report for StoneCo. Buffett himself told us to be greedy when others are fearful, and pardon the pun but StoneCo is at rock bottom.
Final Verdict: It’s always hard to compare two stocks that are priced so differently. MercadoLibre trades at over $1,100 per share while StoneCo is currently at around $15.00. MercadoLibre is a much more established company and should be able to utilize its capital raised for future growth. StoneCo is risky for sure, and relies completely on the Brazilian economy. For now, I’m investing my money into MercadoLibre and keeping StoneCo on my radar.
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