The Motley Fool’s Take
Latin America has one of the largest and fastest-growing e-commerce markets in the world, but most people in the region still lack or have limited access to bank accounts, limiting their ability to make digital payments and shop online. That’s a huge opportunity for the region’s leading financial technology (fintech) and e-commerce company, MercadoLibre.
The company primarily generates revenue from marketplace services and product sales, fees on fintech products such as credit card and debit transactions, and commissions from mobile payments. Its businesses are similar to both Amazon.com and PayPal.
Overall revenue almost doubled year over year in the first quarter to $4.3 billion (on a currency-neutral basis). MercadoLibre continues to see strong double-digit percentage growth in active users. At the same time, unique active buyers in its marketplace business grew by 16% year over year to 53.5 million, while the number of fintech monthly active users grew 38% to 49 million.
The stock seems appealingly priced at recent levels, with both its trailing price-to-sales (P/S) ratio and forward-looking price-to-earnings (P/E) ratio well below their five-year averages. (The Motley Fool owns shares of and recommends MercadoLibre.)
Ask the Fool
From F.D. of Arlington, Va.: What’s a dividend’s “ex-date”?
The Fool responds: There are several dates related to how companies issue dividends. First is the date that an upcoming dividend payment is announced, and last is the date the dividend is paid. In between are two other key dates: The “date of record” is the date on which you need to be a shareholder in order to be eligible to receive the dividend. And the “ex-dividend” date, or “ex-date,” is generally one business day before the date of record. If you buy the stock on that date, you won’t get the upcoming dividend — the seller of the stock gets it. If you buy the stock before the ex-dividend date, though, you will get the dividend.
This doesn’t matter much unless you’re buying or selling a stock right around the ex-dividend date.
From C.W. of Bend, Ore.: I read that there’s an “activist investor” involved with Southwest Airlines. Should I be concerned?
The Fool responds: Here’s what’s going on: Southwest’s shares were recently down about 27% from their 52-week high, and a lower share price can make it easier for someone to accumulate a lot of stock in the company.
Southwest recently had a market value of around $17 billion, and Elliott Investment Management (a hedge fund company) has bought nearly $2 billion worth of Southwest’s shares. Owning such a big chunk of the company gives Elliott some power, and it’s interested in seeing some changes made, such as new leadership. Smaller investors should think about whether they agree with Elliott’s position.
If you’re a shareholder or you’re thinking of becoming one, it’s worth keeping up with such developments, so you can factor them into your deliberations about the company.
The Fool’s School
To become a better investor, you’ll need to learn a lot of terms, such as:
— Book value: A company’s assets minus its liabilities, both of which can be found on its balance sheet. Book value is approximately what would be left for shareholders if the company were liquidated.
— Bull (and bear) market: When the overall market gains (bull) or loses (bear) value over an extended period. Some definitions include a gain (or drop) of at least 20%.
— Capital gain/loss: The difference between the price at which an asset is sold and the price you paid for it — the “basis.” (Basis is calculated differently for gifts and inheritances.) Buy a stock for $100 and sell it for $150, and you’ve got a capital gain of $50, less any trading fees.
— Liquidity: A measure of how quickly an asset can be sold at a fair price and converted to cash. Liquid assets include many stocks. Stocks with low trading volume are illiquid, and so is real estate.
— Market timing: An investment strategy based on predicting short-term price changes in securities — which is extremely difficult to do successfully over long periods.
— Securities: Assets with monetary value that can be traded. Key types of securities include equities (such as stocks), debt securities (such as bonds and CDs) and hybrid securities (such as convertible bonds and preferred stocks).
— Standard & Poor’s 500 index: A grouping of 500 of America’s biggest publicly traded companies. The S&P 500 is often used as a benchmark for the overall U.S. stock market, and indeed, it represents about 80% of the market’s value.
— Treasury bill (T-bill): A short-term debt security issued by the U.S. government, with a maturity of one year or less. T-bills, considered ultrasafe, are essentially a vehicle for you to lend money to the government, which pays it back with interest.
Learn more at Fool.com/terms.
My Smartest Investment
From B.H.: My smartest investment move was simple: starting to save as early as possible.
The Fool responds: That’s one of the smartest things anyone can do — yet, unfortunately, too many people don’t get a wake-up call to do it until we’re in our 40s — or later. (That’s understandable, since millions of us never learned much about money in school or from our families.) Saving is critical for nearly everyone.
Just as important is investing our dollars effectively. Money you might need within five or even 10 years should be in short-term savings such as CDs or money market funds. For long-term money, the stock market is an excellent choice; you can keep things very simple by just adding money over a long period to one or more low-fee index funds, such as one that tracks the S&P 500.
Imagine someone who’s 40. If they manage to invest $10,000 per year (that’s $833 monthly, on average) for the next 25 years, earning an annual average return of 8%, they’ll end up with around $790,000 by age 65. That’s great, but if they’d started a decade earlier, at age 30, they’d have more than $1.8 million by age 65. The more time your money has in which to grow for you, the more you can amass. Your earliest invested dollars are the most powerful.
Who Am I?
I trace my roots way, way back to 1623. My founder was an alchemist trying to make gold who accidentally made excellent cymbal material. He kept perfecting the formula, which remains a family secret. One of his descendants introduced cymbal terms such as “rides,” “crashes” and “effects.” Today, based in Norwell, Mass., I’m a premier global maker of cymbals, drumsticks and percussion mallets, all of which are made in the United States. My brands include my own name, as well as Vic Firth and Balter. Many descendants of my founder are in leadership positions at the company. Who am I?
Don’t remember last week’s question? Find it here.
Last week’s answer: BNSF Railway