Five years ago, the world was thrown upside down by the Covid pandemic. But at the time I was looking to buy a handful of shares, with an eye on the e-commerce sector, which I assumed would boom during lockdowns. Naturally, I considered Amazon (NASDAQ: AMZN) stock as the firm was an e-commerce pioneer.
However, I instead went with lesser-known MercadoLibre (NASDAQ: MELI). Given that I tend to buy stocks to hold for a minimum of five years, now seems like a good time to reflect on that decision. Was it the right one?
Rationale
Back then, both e-commerce firms were growing strongly (MercadoLibre across Latin America and Amazon globally). But Amazon already had a colossal $1.1trn market cap, making it about 40 times larger than MercadoLibre with its $27bn market value.
Of course, this doesn’t mean anything on its own. Larger firms are often that way because they’re more established and profitable, while smaller enterprises can carry higher risk due to flimsy fundamentals.
Nevertheless, I wanted to invest in a company that wasn’t already massive,as these have (in theory at least) a better chance of making higher returns.
Also, Latin America was still around a decade behind North America and Europe in terms of smartphone/internet penetration. So I figured that if MercadoLibre became a true e-commerce leader in the region — which looked increasingly likely — then it might enjoy the same sort of market-thumping share price growth as Amazon had in previous years.
How did this work out?
Since my investment in early April 2020, MercadoLibre stock has surged 312% against Amazon’s 85%.
The latter has actually underperformed the S&P 500‘s return (around 100% with dividends). I find that surprising, as Amazon’s revenue has more than doubled in that time, surging from $280bn in 2019 to $638bn last year. Earnings per share (EPS) are up nearly 400%!
Meanwhile, MercadoLibre’s revenue has skyrocketed from $2.3bn in 2019 to over $20bn last year! It has also turned profitable, with EPS going from -$3.71 to $37.69.
While MercadoLibre is often called the ‘Amazon of Latin America’, there are some notable differences between them. The US giant has a massive and very profitable cloud computing business (AWS), which MercadoLibre doesn’t.
That said, the Latin American company posseses a PayPal-like fintech business that boasts over 61m monthly active users. Both have sprawling logistics infrastructure, giving them a competitive edge, as well as popular subscription services (Prime and MELI+, respectively).
However, both firms face near-term risks due to the US-China trade war. This has the potential to trigger inflation and an economic downturn, putting pressure on consumer spending.
Which stock would I choose today?
I still own the position I bought in 2020 and have no plans to sell. Indeed, I’ve since bought its shares on two further occasions!
However, looking at the two stocks today, Amazon arguably looks the more attractive. It’s trading at around 28 times forward earnings versus 45 for MercadoLibre.
Of course, the beauty of investing is that it doesn’t have to be either/or. I think both stocks will outperform long term, as each company continues to benefit from unstoppable trends like e-commerce, digital payments, and AI-driven online advertising.
As such, I’m considering Amazon shares while they’re under $200.
