The best stocks to buy right now: MercadoLibre vs. PDD Holdings

MercadoLibre (MELI 0.69%) and PDD (PDD 8.03%) are two of the fastest growing e-commerce companies in the world. MercadoLibre is the largest e-commerce company in Latin America, while PDD is the third largest player in China.

Both stocks have skyrocketed since debut. MercadoLibre went public in 2007 and has risen over 11,370% from its IPO price of $18 to around $2,037 recently. PDD went public at $19 in 2018 and has risen over 610% to around $135.

Image source: Getty Images.

MercadoLibre and PDD have wowed investors with rapid growth, expanding ecosystems, and rising profits. But what is the best stock to buy now?

Differences between MercadoLibre and PDD

MercadoLibre operates its marketplace in 18 Latin American countries, but generates most of its revenue in Brazil, Mexico and its home market of Argentina. It was initially a third-party marketplace that relied on external merchants, but later launched its primary marketplace and built its own logistics network. The company has also locked in customers with its own digital payment platform, Mercado Pago, and its associated fintech services.

PDD’s namesake platform, Pinduoduo, only operates in China. It initially offered both primary and third-party market services, but phased out primary services in 2021. It also offers an online agricultural platform that directly connects farmers to buyers and owns Temu, a popular cross-border marketplace. which helps Chinese sellers reach overseas buyers.

Which company is growing faster?

From 2018 to 2023, MercadoLibre’s revenue grew at a compound annual growth rate (CAGR) of 59% in USD. PDD’s revenue grew at an even higher CAGR of 80% in RMB terms and 79% in USD terms — but PDD’s growth was more volatile.

Data source: MercadoLibre and PDD. USD terms.

MercadoLibre’s growth accelerated in 2020 and 2021 as the pandemic created strong tailwinds for its e-commerce and digital payments businesses. But like many other e-commerce leaders, it lost momentum as those tailwinds dissipated.

PDD’s revenue grew in 2019 and 2020 as its discount marketplace gained hundreds of millions of customers in China’s downstream cities. It encouraged these shoppers to team up on social media to get massive discounts.

But in 2021 and 2022, China’s draconian COVID-19 lockdowns have reduced the country’s economic growth. These macro headwinds along with stiff competition from top competitors Alibaba and JD.comcaused their growth to cool. In 2023, its growth accelerated again as China’s macro environment recovered.

Both companies should continue to grow in the near future. From 2023 to 2026, analysts expect MercadoLibre’s revenue to grow at a CAGR of 27% in USD terms. They expect PDD revenue to grow at a CAGR of 36% in RMB terms.

MercadoLibre’s robust growth should be driven by the continued expansion of its e-commerce market into new regions and the strength of its fintech ecosystem, which surpassed 50 million monthly active users for the first time in its latest quarter. PDD’s growth should be largely fueled by its market share gains over Alibaba and JD in China, its continued dominance in the online agricultural market, and Temu’s expansion into the US and other overseas markets.

Which company is more profitable?

MercadoLibre and PDD were both unprofitable and went public. But MercadoLibre became profitable in 2021, and its net income grew at a CAGR of 244% in USD terms over the next two years. These rising profits were driven by its economies of scale, which diluted its logistics and payment processing costs. PDD also became profitable in 2021 after closing its low-margin primary business. Its net income grew at a CAGR of 178% in RMB terms from 2021 to 2023.

From 2023 to 2026, analysts expect MercadoLibre’s net income to grow at a CAGR of 49% in USD terms as PDD’s net income grows at a CAGR of 42% in RMB terms.

Based on those expectations, MercadoLibre and PDD trade at about 42 times and 10 times next year’s earnings, respectively. MercadoLibre may still look reasonably valued relative to its growth potential, but PDD looks very cheap for two reasons: It stunned investors with a warning of a near-term slowdown and increased spending in its last quarter, and tensions between The US and China are still turning many investors away from Chinese growth stocks.

Which stock is a better buy right now?

I personally own shares of MercadoLibre instead of PDD, but MercadoLibre may need a break after rallying more than 60% to new highs in the past 12 months. PDD shares are also up more than 40% in that time, but its valuations are still too cheap to ignore. So if you’re looking to own just one of these high-growth e-commerce stocks right now, PDD might be the better choice for investors who can handle a lot of short-term volatility.