Experiencing a market downturn can be unsettling, but savvy investors understand that it also offers a chance for profit. Once you have moved past your initial concerns, your next step should be to begin searching for undervalued assets.
If the market keeps decreasing in the upcoming weeks and months, Costco Wholesale is a chain of membership-based warehouse clubs that offers a wide range of products at discounted prices to its members. ( COST -0.21% ) , MercadoLibre ( MELI -1.03% ) , and Shopify ( SHOP 0.20% ) There are three stocks worth monitoring closely. Although they may appear pricy at the moment, be prepared to take advantage if their prices drop.
The king of warehouse modeling.
If you are a Costco Wholesale cardholder among the 134 million, chances are you have been enticed by the warehouse retailer’s competitive prices and customer service. The increasing number of customers joining the Costco trend has resulted in a boost in sales and profits for the company. in spite of rising prices .
In the third quarter of fiscal 2024, which ended on May 12, there was a 7.8% increase in membership compared to the previous year. Fee income also saw a growth of 7.6%. Sales in the quarter went up by 9.1%, mainly due to a 6.6% increase in comparable sales. Earnings per share (EPS) surged by 29% to $3.78.
The positive growth of the retailer has continued into the ongoing quarter. Costco releases monthly reports on specific measures, and in July, sales rose by 7.1% compared to the previous year, while comparable store sales increased by 5.2%. The company has been experiencing significant growth in online sales, with a 20% increase reported last month.
Although Costco has experienced a decrease in sales of big-ticket items due to customers delaying their purchases, people continue to visit its warehouse clubs to maximize the benefits of their memberships. This led to a 6.1% increase in foot traffic during the quarter, while the average amount spent per purchase remained relatively unchanged.
The company received favorable media attention upon revealing. an extra dividend The company’s stock price increased to $15 per share. Additionally, it recently decided to raise its membership fee from $60 to $65. The management delayed this price increase earlier due to inflation concerns among customers. However, the company believes that investing the additional revenue generated from the fee hike into enhancing the business will offer more value to its members.
Investors are often hesitant due to Costco’s high valuation, with its shares trading at 53 times the earnings of the past 12 months. However, if the stock is affected by a general market decline, it may become very attractive.
Driving online business in Latin America
MercadoLibre is a prominent player in the global e-commerce industry, with a strong emphasis on the Latin American market, which may explain why it is not widely known outside the region. Operating in 18 countries, it offers an online platform that is comparable to… Amazon , and it also provides well-known financial technology services to enhance its online retail operations.
Even after reaching its 25th anniversary, MercadoLibre continues to expand rapidly as if it were a newer and smaller company. Its success is attributed to being in a vast market that has not yet fully embraced e-commerce. Additionally, having invested in a comprehensive fulfillment infrastructure over the years, the company is able to swiftly deliver products to customers at a reasonable price.
The gross merchandise volume (GMV) has experienced a remarkable growth. Compound annual growth rate (CAGR) refers to the year-over-year growth rate of an investment or business over a specified period of time, taking into account the effect of compounding. There has been a steady increase of 28% since 2016, with a 20% year-over-year growth, or 83% when adjusted for currency fluctuations, in the second quarter. There is a rise in engagement as more customers are actively shopping, purchasing across various categories, and shopping more frequently.
The fintech industry is experiencing rapid growth, with a significant increase in total payment volume in the last quarter. MercadoLibre is expanding its range of services to attract more customers and boost sales, leading to greater potential for cross-selling and customer interaction. Among its recent initiatives is the launch of a digital bank in Mexico, leveraging its strong digital payments footprint in the country and aiming to establish itself as the leading digital bank in the market.
MercadoLibre is experiencing significant growth and appears to be a solid investment even at its current price. Despite recent market fluctuations, the stock has remained relatively stable, and any decrease in price presents a chance that investors should take advantage of.
Leading the transformation of online commerce
Shopify is a well-known platform that powers numerous online stores, offering the necessary framework for businesses to benefit from the continuous expansion of online shopping. Initially focused on developing complete e-commerce stores, Shopify has now diversified its offerings to cater to businesses of all scales, including large enterprises. As online shopping continues to dominate retail sales, Shopify is well-positioned to maintain its strong growth trajectory.
However, the company has been working on recovering from errors that occurred during the pandemic over the past few years. Similar to numerous other companies that rapidly grew to keep up with the increasing demand at the beginning of the global crisis, it had to reduce its size and concentrate on making profits after realizing that its growth during the pandemic was not viable in the long run.
The most recent financial report from Shopify indicates that the company is making steady advancements. It recently announced impressive results for the second quarter that surpassed predictions in every aspect. Revenue saw a 21% growth compared to the previous year, while GMV rose by 22%.
The financial performance indicators were excellent as well. The gross margin increased from 49.3% to 51.1% when compared to the previous year. free cash flow The revenue grew from $97 million to $333 million, and the operating profit reached $271 million after experiencing a loss of $1.6 billion in the previous year’s quarter due to the sale of the logistics division.
The stock is currently valued at a premium, trading at approximately 12 times its sales over the last 12 months and 52 times its earnings. future profits Although Shopify is currently a strong investment for growth, it would become a very compelling purchase if its stock price is lowered due to a general market downturn.
