MercadoLibre Inc (MELI) Files 10-K for the Fiscal Year Ended on December 31, 2018

MercadoLibre Inc (NASDAQ:MELI) files its latest 10-K with SEC for the fiscal year ended on December 31, 2018. MercadoLibre Inc is an e-commerce company. It hosts the online commerce platform in Latin America, which is focused on enabling e-commerce and its related services. The company generates most of its revenue from Brazil, Argentina, Venezuela, and Mexico. MercadoLibre Inc has a market cap of $20.19 billion; its shares were traded at around $446.68 with and P/S ratio of 13.83. MercadoLibre Inc had annual average EBITDA growth of 5.90% over the past ten years.

For the last quarter MercadoLibre Inc reported a revenue of $428.0 million, compared with the revenue of $539.6 million during the same period a year ago. For the latest fiscal year the company reported a revenue of $1.4 billion, an increase of 3% from last year. For the last five years MercadoLibre Inc had an average revenue growth rate of 27.8% a year.

The reported loss per diluted share was 82 cents for the year, compared with the earnings per share of $3.09 in the previous year. The MercadoLibre Inc had an operating margin of -4.83%, compared with the operating margin of 10.36% a year before. The 10-year historical median operating margin of MercadoLibre Inc is 31.48%. The profitability rank of the company is 8 (out of 10).

At the end of the fiscal year, MercadoLibre Inc has the cash and cash equivalents of $440.3 million, compared with $388.3 million in the previous year. The long term debt was $602.2 million, compared with $312.1 million in the previous year. MercadoLibre Inc has a financial strength rank of 5 (out of 10).

At the current stock price of $446.68, MercadoLibre Inc is traded at 33.8% premium to its historical median P/S valuation band of $333.83. The P/S ratio of the stock is 13.83, while the historical median P/S ratio is 10.34. The stock gained 18.98% during the past 12 months.

For the complete 20-year historical financial data of MELI, click here.

3 Stocks the World's Best Investors Are Buying Right Now

Sticking to a long-term investing strategy is simple, but not easy. It usually requires years of experience to learn how to suppress emotions (as best as possible) and not follow the whims of the crowd. When a stock collapses on one bad earnings report, perhaps that's a screaming opportunity to start or add to a position. Similarly, when a stock shoots up irrationally, it may be a good time to take some profits off the table.

Given the emotional component of money -- especially your money -- investors can boost their confidence a little by taking a peek every once in a while at what the best investors in the world are buying and selling. We recently asked three contributors at The Motley Fool for their picks of the best stocks being added to the most successful funds right now. Here's why they chose Codexis (NASDAQ:CDXS), International Paper (NYSE:IP), and General Motors (NYSE:GM).

Image source: Getty Images.

Tiny enzymes are big business

Maxx Chatsko (Codexis): After adding to existing positions in recent months, BlackRock and Vanguard Group now combine to own about 11% of Codexis. The small-cap biotech company has a low-profile niche engineering enzymes for various applications. Enzymes are complex molecules used by living things to carry out essential processes such as replicating cells, removing wastes from tissues, and harvesting energy from the environment. Essentially, enzymes work by speeding up chemical reactions -- and that utility holds true in industrial processes, too. 

Codexis wields a technology platform allowing it to rapidly engineer enzymes for a wide range of industries and applications. For instance, it supplies products to some of the world's largest pharmaceutical companies, helping them to manufacture drugs more efficiently, and to Tate & Lyle, helping it to make a zero-calorie sweetener ingredient for food and beverage applications. It's also developing enzymes with Nestle Health Science -- the first of which just got picked up by that partner -- that could become therapeutic medicines for rare diseases.

This year, the biotech will also begin market-testing novel diagnostic products powered by its enzymes that can be used in conjunction with DNA sequencing machines. On top of all that, Codexis also licenses its software platform to several core customers, such as pharmaceutical giant Merck, for eight-figure sums.

Codexis is by no means the largest enzyme engineering company in the world, but the business has finally turned a corner. Continued execution on the wealth of high-margin opportunities it has available could allow the small-cap biotech to deliver its first quarterly operating income in late 2019. That momentum has powered shares to a three-year gain of 440%, although at a market cap of just $1.2 billion and no shortage of growth potential, individual investors may want to start a position in this under-the-radar business.

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What the world's largest hedge fund's betting on

Neha Chamaria (International Paper): As the founder of the world's largest hedge fund, Bridgewater Associates, Ray Dalio is among the most successful investors in the world. Proof of Dalio's success, in fact, lies in the fund's consistently strong performance: He earned nearly $8.1 billion in profit in 2018, making Bridgewater Associates the best-performing hedge fund in the U.S. for the year. The fund currently manages assets worth nearly $124.7 billion.

Dalio's stock moves, therefore, are closely followed by investors. And one of his recent buys that caught my attention was International Paper. It was among Dalio's top five stock additions in the quarter ended Dec. 31, 2018, as Bridgewater bought 1,311,306 shares in the paper and packaging company for an estimated average price of $45.85 per share.

Dalio perhaps saw value in International Paper after its stock fell nearly 26% since the beginning of 2018 through mid-October. Part of Wall Street's pessimism stemmed from the ongoing trade war between the U.S. and China. Fears of tariffs hitting exports of raw material and finished paper products to China -- a key consuming nation -- loomed large.

International Paper, however, eased those fears when it delivered strong numbers for its fourth quarter and fiscal year 2018 in January, reporting impressive growth in operating profits from all its segments.

Two numbers stand out from the company's outlook for 2019: projected free cash flows worth $2 billion, of which $500 million should go toward debt reduction, with the rest returned to shareholders in share repurchases and dividends. Last year, International Paper increased its dividend by 5.3%. With a solid 4.3% dividend yield to boot, the company seems to have made it into Dalio's portfolio for valid reasons.

Image source: Getty Images.

Buffett's bet on GM

Chris Neiger (GM): Warren Buffett, the CEO of Berkshire Hathaway and one of the world's best investors, has added General Motors' stock to his company's portfolio many times. Berkshire's most recent purchase came at the end of 2018 when it bought 19.8 million shares of the automotive giant.

There are a couple of reasons Buffett may be bullish on GM. The first is that the company's shares are trading at just six times forward earnings right now. Aside from GM's shares being relatively inexpensive, the automaker's strong dividend yield of 3.8% is also enticing for many investors.

The second reason for GM's lure right now is its focus on positioning itself for a rapidly changing automotive market. Just a few months ago, the company announced it was restructuring to focus more attention on building electric and autonomous vehicles. That decision comes as annual global autonomous vehicle (AV) sales are expected to surpass 33 million in 2040.

That may seem like a long time away, but GM is working on building that future now. The company's Cruise Automation subsidiary is working on mass-producing a fully self-driving car this year and is expected to launch its own AV ridesharing service this year as well. If that seems premature, consider that Alphabet's Waymo already has a commercial AV ridesharing service running in one city, with plans to expand later this year.

With GM already fast-tracking what it believes will be the future of the automotive industry and the company trading at a discount right now, it's no wonder Buffett is bullish about this automotive giant.

Shaily Engineering Plastics: A disappointing Q3, but don’t overlook its long-term prospects

Highlights:
- After the recent correction, the stock offers value
- Traction in the home furnishing segment will be crucial to overall growth
- Utilisation rate at the medical packaging facility will have a bearing on the margins
- Crude price volatility may impact short-term cash flows

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Shaily Engineering Plastics, a high-precision polymer processing player, reported a weak set of numbers for Q3 FY19. The stock trades close to its 52-week low and leaves enough room for a re-rating, albeit in the long run.

A growing order book in home furnishing, unique product offerings and impetus towards efficiencies in the medical segment, and steady demand trajectory in other verticals (auto, FMCG, lighting) would be the factors to watch out for.

Exports constitute 70-75 percent of Shaily's annual turnover. Around 30-35 of the world's leading original equipment manufacturers procure supplies from the company.

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Q3 analysis

Positives

- Gross margin expanded because of pass-through of raw material costs, which were on an upmove in Q2 in tandem with crude prices

Negatives
- Sales growth was slower year-on-year (YoY) because of delayed orders and change in inventory policies by the Swedish home furnishing major (SHFM)
- EBITDA margin contracted due to lack of operating leverage and higher investments for bagging new orders. Net profit margin dipped because of lower other income and a significantly higher tax rate
- Finance costs increased YoY since debt was taken for funding land acquisition and other capex

- The target to achieve $100 million in revenue has been postponed by a year to FY21-end

Result snapshot

Observations

Swedish home furnishing major's expansion plans in India

SHFM is the world's largest designer-cum-retailer of ready-to-assemble furniture and home/kitchen accessories. It plans to invest Rs 10,000 crore in India over the next 5-6 years. One of its outlets at Hyderabad is already functional, whereas two more will begin operations over the next two fiscals.

This development assumes importance for Shaily for the following reasons:
- 50-60 percent of its revenue is attributable to the SHFM
- It is associated with SHFM for over a decade

- It possesses technical know-how to manufacture products in accordance with the SHFM's strict standards. So, there are high entry barriers in this category.

Shaily will commence supplies of 'carbon steel' furniture to the SHFM from October 2019. The management expects sales of Rs 100-120 crore from this project (involving a capital outlay of Rs 50 crore) by FY21.

Client additions in home furnishing are underway

Starting Q4 FY19, Shaily will begin supplying products to another large Europe-based global department store, whose yearly sales are close to $100 billion and network spans 10,000 stores across countries. Going forward, the order size has the potential to increase substantially.

Demand for medical packages will help derive operating leverage

The healthcare segment is divided into two sub-segments -- devices (insulin pens, dermatological pens) and CRC (child-resistant closures and bottles) packaging. Since compliance costs are steep and clients (i.e. pharmaceutical companies) are intolerant towards errors, there are not too many players in this space.

Utilisation rates at the package manufacturing facilities will pick up only when new orders are secured from domestic pharma clients. The CRC facility, at optimum utilisation levels, can add Rs 55-60 crore to Shaily's top-line. For now, visibility is to the tune of Rs 20-25 crore only.

Higher use of plastics in auto, FMCG and lighting

In the automobile segment, the use of plastics for manufacturing critical components is on the rise within and outside India. The domestic FMCG industry is steadily growing, which results in higher demand for packages. Increasing electrification coverage has helped boost demand for LED lighting. Shaily has business associations with leading brands in these industries.

Cost rationalisation

Labour and power expenses, which rose sharply in 9M FY19, are expected to normalise over the next 2-3 quarters. Consequently, the strain on margin should reduce.

Key risks

- Delays in project implementation from the clients' end may restrict top-line growth

- Raw material price hikes are passed on the customers, but the amount is received after a lag of 3-6 months. This impacts short-term cash flows

Outlook

- After a poor Q3 performance, the stock is close to its 52-week low
- FY19 will end on a subdued note because of sluggish sale volumes
- The stock trades at 20.2 times its FY20 projected earnings

- Any meaningful uptrend in valuation multiples may be visible only from H2 FY20 (i.e. when incremental orders in home furnishing start translating into revenue)

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Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here First Published on Feb 21, 2019 12:34 pm