This has been driven by several trading updates that were better than expected. These two companies have recently issued very promising news, giving me another reason to buy. 

A growing fintech

As cost-of-living pressures have increased, it has been a difficult time for fintechs. This has been reflected in the PayPal share price, which has dropped 65% in the past year, and the Visa share price, which has fallen 10%. However, SoFi Technologies (NASDAQ: SOFI), which is one of the newer fintechs, is my favourite pick in the sector. It has fallen 50% in the past year, worse than many other growth stocks. 

The main reason I like SoFi is due to the business’s strong growth in recent times. For example, in the recent Q2 trading update, it said net revenue rose 57% year on year to reach $363m. At the same time, adjusted EBITDA reached $20m, an 81% year-on-year rise. Its total membership also hit 4.3m, a 69% year-on-year increase. This meant the group now expects full-year revenues of over $1.5bn, higher than previously expected. 

Such a resilient performance has been enabled by SoFi’s diverse portfolio, which includes a Lending, Technology and Financial Services Platform. The recent bank charter it obtained has also allowed it to be resilient, despite the recent macroeconomic pressures. 

There are some major risks, of course, including the major fact that SoFi is still loss-making. In the high-inflation environment, where investors are searching for profitable companies, this is an issue. The ‘short’ interest in SoFi is also very high, another bearish sign. 

However, its growth potential is clear to me, as demonstrated by that recent trading update. Therefore, I may add more SoFi shares to my portfolio. 

A growing e-commerce stock

E-commerce has also been struggling post-pandemic. In fact, some e-tail specialists, like Shopify, have been forced to lay off workers. However, MercadoLibre (NASDAQ: MELI), an e-commerce company based in Latin America, has performed far more resiliently. 

Indeed, in its own Q2 trading update, net revenues were up 56.5% year on year to reach $2.6bn. Most impressively, the group recorded income from operations of $250m, with a 9.6% margin. This has left the company with an extremely strong cash position, which should be used for further reinvestment. 

Like with many other growth stocks, there are risks. In particular, MercadoLibre operates in Latin America, which is prone to financial instability. This may disrupt future growth. 

Even so, this has been a factor burdening the company for many decades and, so far, it has continued to post excellent growth every year. I feel that it can continue to do so and I’ll add more MercadoLibre shares to my portfolio. 

Rising inflation lowers the value of the future cash flows of companies, while also reducing the discretionary income available for consumers. These are major issues for growth stocks.

Rising interest rates also makes it more expensive to issue debt, which can stunt the growth of these companies. Therefore, the Nasdaq, an index that consists mainly of growth stocks, has sunk over 25% year-to-date and over 16% in the past year.

This has also caused significant disruption in my portfolio. But instead of panicking, I see several opportunities to buy. Here are two companies that I feel look too cheap at current prices. 

A Latin American e-commerce giant 

MercadoLibre (NASDAQ: MELI) stock soared during the pandemic, as the transition to e-commerce in Latin America quickened. However, the post-pandemic performance of the company has been far worse, and since its highs in February 2021, the MercadoLibre share price has fallen over 60%. In the past year, it has fallen around 44%, in line with many other growth stocks. I believe the sell-off has now been overdone. 

For one, financial results have continued to impress. In the first quarter of 2022, net revenues were able to soar around 67% to $2.2bn, while income also equalled $139m. These beat expectations, demonstrating that the company’s post-pandemic future remains extremely bright. Further, this has left MercadoLibre exceptionally cheap, in comparison to its historical prices. For instance, it currently trades on a forward price-to-sales (P/S) ratio of under 4, whereas last year the P/S ratio exceeded 10. 

However, this sell-off has reflected the macroeconomic uncertainties and the slow-down in e-commerce. Recently, Citigroup also noted that as the group continues to grow its fintech business, it can expect more loan losses on credit cards, which could hurt profit margins. But while this is a risk, I am still encouraged in the growth of the fintech business. This is because it offers another diversified source of revenues. Therefore, at current prices, I will continue to add more MercadoLibre shares to my portfolio. 

An even more beaten-down growth stock

If you thought MercadoLibre stock has been considerably beaten down, the PayPal (NASDAQ: PYPL) share price chart looks even worse. Indeed, it has now fallen nearly 70% in the past year, making it among the worst-performing growth stocks around. This poor performance is due to evidence of slowing growth.

But there are several reasons why I am tempted to buy more PayPal shares at current prices. For example, although growth has slowed, Q1 revenues were still able to climb 8% and they are expected to climb 12% in 2022. These seem very realistic targets. In addition, the fintech is now attempting to cut costs, which will hopefully equate to rising profits. Nonetheless, with a price-to-earnings ratio of under 30, I feel that investors are not expecting any considerable profit growth. This indicates that PayPal stock may have dipped too far. 

Therefore, although I am slightly concerned at the rising competition in the fintech space, I am likely to still add more PayPal shares to my portfolio. 

Fear in the markets was also caused by a series of disappointing results, including from e-commerce companies eBay and Shopify. But yesterday’s sell-off does seem slightly overdone, especially as the Nasdaq has now fallen over 20% year-to-date, and over 5% in the past year. The one stock I think is particularly tempting at these levels is the Latin American e-commerce company MercadoLibre (NASDAQ: MELI).

Trading update 

After the market closed, it released a very promising trading update. Firstly, the headline figures were exceptionally strong. For instance, despite the slowdown that many e-commerce companies have been suffering in recent months, MercadoLibre managed to record Q1 revenues of $2.2bn, which was a record for the firm. This was also up around 67% year-on-year, which signals incredible growth. And in comparison to a net loss last year, it delivered net income of $65m. These are all great signs for any growth stock.

I was also very impressed that the firm managed to record gross profits of around $1.1bn, which was another record. This means gross profit margins were 47.7%, which considering the current rate of inflation, is extremely strong. These margins were aided by the fact that MercadoLibre had been able to pass on the higher costs through boosting its prices. It was also revealed that shipping costs as a percentage of total revenues continued to decline, demonstrating strong operational efficiency from the company. This bodes well for future profitability. 

Fintech strength 

Alongside the e-commerce business, I am very impressed with the fintech side of the business, known as MercadoPago. As banking penetration in Latin America remains low, this is an area where I feel growth can be particularly strong. Yesterday’s trading also highlighted the fintech sector as an area for growth. Indeed, in Q1, MercadoLibre ended with a credit portfolio of $2.4bn. This is far higher than the $1.7bn at the end of 2021. There are also plans to expand the company’s buy-now, pay-later service, called MercadoCredito.

There are risks, however. For example, the current macroeconomic environment is very challenging, especially as higher interest rates may increase the cost of servicing its large debt pile. Further, there are worries that consumer spending may decrease, as inflation continues to bite. 

What am I doing with this growth stock?

Although I’m wary about buying e-commerce companies now, due to their slowing growth after the pandemic, I feel that MercadoLibre is unique. Its revenue growth has remained excellent, and profit margins have also held up well. For me, this distinguishes the e-commerce firm from other growth stocks. Therefore, I’m tempted to add more of the shares to my portfolio after the Q1 trading update. 

What company is it? 

MercadoLibre (NASDAQ: MELI) has managed to deliver consistent growth over the past few years. Indeed, while in 2019 it reported revenues of around $2.3bn, last year it recorded revenues of $7bn. At the same time, it has managed to reach profitability. This incredible growth represents the quality that Warren Buffett refers to. 

Such strong revenue growth has been enabled by its diversification. For example, alongside its established e-commerce sector, it also has an expanding fintech sector. In the fourth quarter of 2021, its fintech ops saw revenues of $773m, a 70% increase year-on-year. Banking penetration remains fairly low in Latin America, so I see significant potential in here. 

I also feel that revenues can increase further in 2022. In fact, the group has committed to around $3.44bn of investment in Brazil, which is a 70% year-on-year rise. Investments in Mexico will also be lifted to around $1.5bn. Although this will see costs soar, and may lead to an operating loss, it means that the high growth should be able to continue. This cements MercadoLibre as one of my favourite growth stocks. 

The risks 

MercadoLibre has lost significant amounts of value recently and is down around 40% from its highs last September. This is one reason why I believe that Warren Buffett might be interested in such a stock, because it represents value. But this recent fall does highlight many of the risks associated with the company. 

For example, as it operates in Latin America, it is subject to some political instability. Argentina is an example, because the country has seen hyperinflation over the past few years, and this has caused currency losses for MercadoLibre. This may disrupt its growth plans. Further, now that the pandemic is mainly subsiding, e-commerce may start to decline in popularity. 

Why am I still buying this growth stock? 

Despite these risks, I believe that the recent sell-off has been slightly overdone. Indeed, it now has a price-to-sales ratio of around 8, whereas historically it has traded with price-to-sales ratios of over 20. Considering the company’s excellent growth rates, which are showing no signs of slowing down, I feel this is too cheap. I’m continuing to buy this high-potential growth stock. 

Latin American e-commerce giant

MercadoLibre (NASDAQ: MELI) released its Q4 results on Tuesday evening, and it offered further evidence of its incredible growth prospects. For example, the company reported net revenues of $2.1bn in the quarter, which was up 73.9% on a currency-neutral basis, and 60.5% in US dollars. This meant that full-year revenues grew to $7bn, over a 75% increase from last year. The company also has a diversified source of revenues, due to both e-commerce and the fintech segment. Fintech performed especially well in the fourth quarter, with revenues rising to $773m, a 70% increase from last year. As banking penetration in Latin America is still quite low, there is certainly room for more growth. These are all very positive signs in growth stocks.

Despite this, I was slightly disappointed to see a net loss of $46.1m, after being profitable over the past few quarters. This loss was mainly attributable to foreign currency losses — a downside of operating in international markets — and major interest expenses due to the company’s large debt pile. But I’m not overly worried as these seem like short-term problems.

As such, I’ll continue to add MercadoLibre shares to my portfolio, especially as the stock remains below $1,000. This means that it currently trades at a price-to-sales ratio of 7, which is historically low for MercadoLibre and below other growth stocks. For a company with such incredible growth, this seems like a bargain.

Another beaten-down growth stock

SoFi Technologies (NASDAQ: SOFI) is another growth stock that piques my interest. In fact, after reaching highs of around $24 last November, it has since fallen back to just $10. This sell-off now seems overdone for these reasons.

Firstly, the fintech has recently acquired a bank charter, meaning that it will be able to directly lend to customers. This should be a major boost for profitability. Secondly, the bank is growing at incredible rates. Indeed, in the Q3 trading update, it announced that it had 3m members, which was a 96% year-on-year rise.

There are certainly risks with the company, however. For example, despite seeing slower revenue growth than MercadoLibre, it trades at a P/S ratio of 8. This may signal that there is further to fall. Further, I was slightly concerned at its recent acquisition of Technisys in an all-share deal worth $1.1bn. Although it is expected that this will create around $80m in cost savings between 2023 and 2025, I was disappointed to see the share dilution and would have preferred the company to use some debt in the deal. I also feel that the deal may have been slightly expensive.

Even so, I have faith in CEO Anthony Noto and think that SoFi can be a real competitor in the fintech space. Therefore, I may add more SoFi shares to my portfolio at its current price.

A Latin American e-commerce giant

MercadoLibre (NASDAQ: MELI) has achieved significant growth over the past few years. Indeed, in 2020, the company recorded revenues of $3.97bn, which was a 73% increase from the previous year. It also expects revenues of over $7bn in 2021, which is similar growth to last year. This places the firm on a price-to-sales ratio of around eight, which is far lower than it has been in the past.

The company’s growth prospects are also strong. This is because MercadoLibre is expanding in both its e-commerce and fintech sectors. Both these sectors are unpenetrated in Latin America, and therefore there is certainly room to grow, especially as MercadoLibre is a market leader.

There are some risks though. For example, many of the jurisdictions where MercadoLibre operate in are seeing political instability. Argentina is one example, as the country has experienced mass hyperinflation over the past few years. This could potentially disrupt MercadoLibre’s business plan. Further, a significant amount of recent growth may have been due to the pandemic. As such, once consumers go back to physical stores, growth may slow.

But while these are risks, the recent dip in the MercadoLibre share price seems too good an opportunity to miss. Therefore, this is a growth stock I’ll continue to add to my portfolio.

A growth stock I’m avoiding

The recent dip in many growth stocks doesn’t mean that they are all bargains. In my opinion, Palantir (NYSE: PLTR), which makes software and analytics tools for the government and other companies, is one example.

But firstly, there are several positives with the company. For example, over the past year, it has managed to see strong revenue growth of around 40%, rising to around $1.5bn for 2021. It has also managed to add many new customers. For instance, in the third quarter, it added 32 new customers. This demonstrates that Palantir’s business plan is working.

But I’m concerned about the valuation of the company. In fact, even after the recent dip in the Palantir share price, it still has a price-to-sales ratio of 18. This is twice the P/S ratio of MercadoLibre, even though Palantir is seeing slower growth. It is also deeply unprofitable, meaning that high inflation is likely to have an ever more profound effect. Therefore, this is a stock I’m leaving on the sidelines.

Excellent business performance

MercadoLibre has gone from strength to strength over the past few years, and the pandemic has helped accelerate growth. For example, in 2020, the company recorded revenues of $3.97bn, which was a 73% increase from the previous year. The company has built on this excellent performance in 2021, and after reporting revenues of $1.97bn in the third quarter, a 73% year-on-year rise, annual revenues are forecast to reach close to $7bn. I am also hoping the company gets a Christmas boost.

Such strong revenue growth has partially been reflected in the MercadoLibre share price. Indeed, since the start of 2020, the shares have risen nearly 100%. But at the same time, revenues have also risen around 230%, and it has managed to reach profitability. From this standpoint, the company’s growth is higher than the share price rise. This is a sign to me that the shares are too cheap and offers me evidence that this growth stock may even be able to double in value over the next year.

Valuation

The next indication that this growth stock could double in value is from its lower valuation than other companies in the e-commerce market. In many ways, this may seem odd, because MercadoLibre does seem fairly expensive on a pure valuation perspective. For example, it has a price-to-earnings ratio of around 300, far higher than the majority of other companies. But the firm has always prioritised growth over profits, and this has included significant investment into itself. As such, I’m not worried about such a high P/E ratio, as profits seem likely to grow from this point.

Secondly, due to its focus on growing revenues, it currently trades on a price-to-sales ratio of under 10. This can be compared to Shopify, the Canadian e-commerce firm, which has a P/S ratio of around 30. Both are seeing revenue growth at similar rates. As such, while I believe that Shopify is slightly overpriced, if MercadoLibre was to reach a similar valuation, it indicates that it could triple in value. Shopify also has a very similar P/E ratio. For me, this is evidence that MercadoLibre is underpriced, and could double in value next year.

What am I doing with this growth stock?

I already own MercadoLibre shares, and it currently makes up the top position in my portfolio. Although I worry about the risks of inflation, which has seen many growth stocks lose significant value, I feel like this is a short-term issue. With e-commerce still a largely unpenetrated market in Latin America, and MercadoLibre leading the way at the moment, I’m therefore optimistic. I will continue to add MercadoLibre shares at its current price.

A Latin American e-commerce giant

Since it announced that it was raising around $1.55bn through a share issuance midway through November, the MercadoLibre (NASDAQ: MELI) share price has crashed 35%. This is despite the fact that the new shares were issued at $1,550 per share and had a very minimal dilutive effect. As such, its current share price of around $1,050 seems way too cheap and the sell-off looks overdone to me. This is especially true considering that the company is performing excellently, and over the Christmas period, I feel it can improve further.  

Indeed, in the Q3 trading update, the company reported revenues of $1.9bn, a 73% year-on-year rise. This means that revenues have totalled nearly $5bn so far in 2021. Further, I feel that, especially considering the Christmas boost, revenues will be able to reach $7bn for the full year. This puts MercadoLibre on a forward price-to-sales ratio of around just 7. Considering the firm’s excellent revenue growth rate, this seems far too cheap. For example, Amazon has a price-to-sales ratio of around four, yet its revenue growth rate is around five times slower. Like other good tech stocks, MercadoLibre also has diversified revenues due to its fintech business, MercadoPago.

As such, despite the risks of inflation, and the recent rights issue continuing to depress investor sentiment, I think MercadoLibre is way too oversold. I’ll continue to buy this stock on the dip.

A very established tech stock

PayPal (NASDAQ: PYPL) is one of the leaders in the fintech industry, yet it has fallen over 40% from its recent highs, and 16% over the past year. This has mainly been due to fears of rising competition, which includes companies like Square and SoFi. But while such competition does pose a risk, PayPal still seems in an excellent position to continue growing. Indeed, in the recent trading update, it was able to add another 13.3 net new active accounts. It also announced a partnership deal between its subsidiary Venmo and Amazon.

Therefore, I believe that PayPal has maintained a competitive edge over its competitors. As the fintech industry is growing quickly, it should also be in a strong position to capitalise. In fact, it’s already aiming for $50bn in revenues by 2025, around a 100% rise from this year. If it can achieve this, profits should also soar. This demonstrates that the share price still has plenty of upside potential. Accordingly, I’m willing to buy more shares in this established tech stock.  

70% revenue growth

MercadoLibre (NASDAQ: MELI) has impressed me repeatedly to the extent that it now makes up the second largest position in my portfolio. But while the MercadoLibre share price has managed to rise 24% over the last year, it has fallen over 13% over the past three months. I feel this dip makes this an excellent time to buy.

For one, the Latin American e-commerce company is seeing huge growth rates. This was shown in its recent Q3 trading update, where it recorded net revenues of $1.9bn, a 73% year-on-year rise. The company also maintained its profitability, reaching net income of over $95m, significantly higher than the $15m recorded in the same period last year. While this still places the company on a very high price-to-earnings ratio of over 200, the firm is prioritising growth over profits, and therefore, I expect that profits are likely to continue rising over the next few years. This is a very good sign in any growth stock.

I’m also impressed by the company’s diverse revenue streams. Indeed, while the bulk of revenues come from the e-commerce business, MercadoLibre has a growing fintech service, known as Mercado Pago. In the third quarter, fintech revenues increased over 60% year-on-year to reach $632m. This should continue to supplement the very successful e-commerce business. I feel that this helps differentiate MercadoLibre from other e-commerce companies.

There are risks with it, however. For example, with a price-to-sales ratio of over 12, the stock isn’t cheap, and high growth is already factored in. The high rate of inflation will also cause issues, especially as MercadoLibre has a lot of debt. Despite these issues, its potential is too difficult to ignore, and therefore, I may buy more.

A ‘growth’ stock with limited growth

The Beyond Meat (NASDAQ: BYND) share price has suffered considerably over the past year, falling 33%. This has mainly been due to a series of disappointing trading updates. For example, in the recent Q3 update, it posted revenues of $106.4m, just a 13% rise from the same period last year. Gross profit margins also decreased from 27% to 21.6%, primarily due to increased transportation costs and higher warehousing costs. This also led to a larger-than-expected loss of $54.8m.

This had led to fears from some analysts that the company is “reaching market saturation faster than expected”. This isn’t a good sign for any growth stock. It also led to several brokers cutting their price targets for the stock. In fact, JP Morgan has recently implied that it has a 36% downside. 

Of course, there’s potential that the stock can rebound. This is especially true given that the global market for plant-based foods could see fivefold growth by 2030. But at the moment, Beyond Meat seems to be falling behind competitors. Therefore, I’ll wait for a further dip, or a change in the company’s fortunes before buying.

Telehealth provider

Teladoc (NYSE: TDOC) saw its share price soar during the pandemic as many people in the US opted for virtual healthcare. Nonetheless, its performance has been far weaker in recent months, and year-to-date, it’s fallen over 20%. This is because investors have started to worry about the company’s post-Covid prospects. But in my view, its current share price of around $150 doesn’t reflect its huge potential.

Indeed, even after Covid, the company is seeing incredible growth. For example, in the most recent Q3 trading update, revenues reached $522m, which was an 81% rise year-on-year. This means that full-year revenues are expected to reach over $2bn. This gives the company a price-to-sales ratio of around 10. While this does not indicate a really cheap valuation, it is undervalued in comparison to many other growth stocks. For instance, Shopify trades on a price-to-sales ratio of around 37, even though its revenue growth is slower than Teladoc’s. Accordingly, if Teladoc keeps growing revenues at the current rate, I feel its share price will be able to rise as well to reflect this.

However, there are risks. For example, in the third quarter it saw a net loss of nearly $85m. While many growth stocks are unprofitable, it is still a risk worth considering. It is also a factor that could prevent the stock from surging in price. If revenue growth slows, the price could also fall heavily.

But I am confident in the future and therefore, Teladoc makes up part of my portfolio. After the company signed recent agreements with CVS Health and Centene, I can also see the revenue growth staying at the same rate. This means that the prospect of the stock soaring seems feasible to me.

A Latin American growth stock

MercadoLibre (NASDAQ: MELI) is the other growth stock I feel could soar in the coming years, especially after its recent dip. This dip has partly been due to worries of supply chain disruption in the e-commerce market, a factor which may strain profits. Nonetheless, while this is certainly a risk, the prospects of this Latin American e-commerce stock look too good to ignore.

In fact, in the company’s Q2 trading update, it recorded revenues of $1.7bn, a year-on-year increase of 102.6%. It also managed to make a small profit of $68.2m, even though the company is prioritising growth over profits. These excellent results were boosted by the company’s fintech segment, Mercado Pago, which now has around 100m unique active users. This offers a new dimension to the company, something I feel will contribute towards larger revenues and profits in the future.

As a market leader in e-commerce in Latin America, which is still fairly unpenetrated, I also feel that the company’s growth prospects are far better than many of its competitors, including Shopify and Amazon. Therefore, if the company continues with its 100% revenue growth, I believe the share price will rise significantly as well. As such, I am tempted to buy more shares.