Motley Fool: Online Market Profits

The growth of global e-commerce is a megatrend worth investing in. In Latin America, one company dominates the e-commerce market: MercadoLibre (Nasdaq: MELI).

MercadoLibre is like eBay and PayPal rolled into one – except it’s growing much faster. It operates a marketplace (Mercado Libre), offers logistics services to sellers (Mercado Envios), grants loans to merchants (Mercado Credito) and has a growing digital payment business (Mercado Pago). Revenue was up 74% year-over-year in the fourth quarter — down from triple-digit percentages achieved in 2020, but with plenty of room for growth.

So far, Mercado Pago has 28 million users in Brazil and great potential for growth. And recently, MercadoLibre started offering a cryptocurrency trading tool, which can fuel more engagement with the app.

During the company’s fourth quarter earnings call, Chief Financial Officer Pedro Arnt expressed optimism: “Even with physical stores reopening, customers in Latin America have embraced online shopping, paving the way long-term growth in the region”.

The recent market sell-off in technology and growth stocks has given investors a chance to buy MercadoLibre at a relatively cheap valuation: a recent price-to-sales (P/S) ratio of 8.2 – versus a P/ S of 25 Over a year ago. (The Motley Fool owns shares of and recommended MercadoLibre.)

ask the fool

Q: If a company pays more dividends than it has profits, should I stay away? – CH, Saginaw, Michigan

A: Not necessarily, but digging a little deeper into the business is a good idea. What you’ve noticed is called a company’s “payout ratio” – the sum of its annual dividends per share divided by its earnings per share (EPS) for the year. A ratio below 1.0 (100%) means the company has enough earnings to cover its dividend obligations, and a much lower ratio generally reflects plenty of room for dividend growth in the future.

On the other hand, a ratio above 100% reflects a company that pays more dividends than it generates net income. It’s not necessarily bad, if the company has enough cash to handle it, and it’s just due to a temporary glitch – like, maybe, a supply chain issue. (If the company is facing long-term problems, it may end up cutting, suspending, or eliminating its dividend.) A high payout ratio warrants a closer look at what’s going on in the company.

Q: My mutual fund is apparently closed to new investors. Should I be worried? – DK, Keene, New Hampshire

A: No. Mutual funds will occasionally close to new investors for a while, if their managers end up with more shareholder dollars to invest than good ideas for where to invest them. That way, they don’t have to deploy shareholder money into second- or third-tier investment ideas. (Some funds will adopt a “soft close,” meaning they strictly limit new investment, usually to existing shareholders.)

My dumbest investment

Years ago, I was a total newbie, frequently searching online for the “hottest stocks right now”. I ended up finding a very small stock. In retrospect, I now see that it was artificially pumped (that’s how I found it in the first place – someone was running ads about it). I stupidly bought $1000 worth of stock and sure enough tripled my money in just a few days. I didn’t sell, though – again, I was a total newbie. My loss is close to 100%.

I’ve learned my lesson: I’ll never fall for another pump and dump program like this again, and if I end up riding a fake wave, I know I need to jump in immediately. It was a hard lesson to learn, but a great long-term learning experience. – ES, online

The madman responds: Don’t be too hard on yourself – even the best investors make regrettable moves, and new investors can do a lot. This is why most investors, whether new or experienced, can benefit from reading and learning about investing.

As you know by now, many penny stocks (those trading at around $5 per share or less) can be manipulated into pump-and-dump patterns. This is where scammers promote stocks to entice new investors to buy, driving up the stock price – only to then dump their own stocks at higher prices, driving down stock prices, burning naive investors .

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