Its dependence on these markets discourages me from recommending a buy, and leads me towards advocating holding this stock. My main concern revolves around MercadoLibre’s susceptibility to currency devaluations and tight exchange rules, especially in Venezuela and Argentina, which will most likely impact results.
Although analysts expect MercadoLibre to outperform its peers in terms of EPS growth over the next few years, I’d recommend taking these estimates with extreme care. Due to the aforementioned currency fluctuations, results in U.S. dollars might largely vary; consequently, the projections are less accurate than usual.
Finally, Mercadolibre Inc (NASDAQ:MELI) trades at 48 times its earnings, almost double the industry average. Offering an unattractive valuation and plenty of uncertainty regarding its future, staying away from this stock, for now, would not be a bad idea. However, keep a close eye on MercadoLibre: its solid business model could deliver plenty of upside, especially if currencies start to stabilize.
The alternative to eBay Inc (NASDAQ:EBAY)
Overstock.com, Inc. (NASDAQ:OSTK) is another online retailer that started out with closeout and discount products, but is now including all sorts of items into its marketplace, from personal items and electronics to cars and emergency preparedness items. Its system, similar to Amazon’s, allows customers to compare prices from different retailers, helping find better bargains.
Expected to deliver annual EPS growth rates around 34% over the next five years, widely outperforming its peers, while trading at 36 times its earnings, about a 30% discount to the industry average, I’d recommend buying and holding onto this stock. To make this company more attractive, let me highlight that its returns on equity of over 72% are among the best in the industry. After a very weak performance in 2011, the company could turn around the story in FY 2012. 2013’s Q1 results were also very encouraging and have provided the (debt-free) firm with relatively large amounts of cash. As the penetration of the internet grows and the trend towards online retail deepens, e-commerce companies will only benefit. Overstock.com, Inc. (NASDAQ:OSTK), in particular, seems poised to seize these opportunities and appears to hold the necessary liquidity to support organic and inorganic growth initiatives. International expansion also provides plenty of room for expansion, as 99% of the firm’s revenue currently comes from the U.S.
Bottom line
Although this writer’s love for Latin America is huge, the fact is that the current economic and political situation makes of MercadoLibre a risky investment. On the other hand, eBay and Overstock.com offer compelling, sustainable and attainable growth prospects at reasonable valuations. Going for Goliath (eBay) is certainly a good idea; however, David (Overstock.com) could also deliver plenty of upside and even beat its big sibling (in performance), just like in the Book of Samuel. I’d say, buy both stocks and hold them for the long-term.
Damian Illia has no position in any stocks mentioned. The Motley Fool recommends eBay and MercadoLibre. The Motley Fool owns shares of eBay and MercadoLibre. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article The Options for eBay in the Americas originally appeared on Fool.com is written by Damian Illia.
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