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Motley Fool Issues Rare “All In” Buy Alert

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The market is still volatile after months of macroeconomic uncertainty, and growth stocks in general are still hurting. But while many growth stocks are underperforming in this environment, others are posting soaring sales. With prices still low, this could be an excellent opportunity to buy on the dip.

Airbnb (ABNB 4.13% ) and MercadoLibre (MELI 5.25% ) are both down more than 30%, but they're demonstrating robust performance and have enormous potential for more gains further down the road.

Since its 2020 IPO, Airbnb has proven to be mostly resilient under the distressing circumstances brought on by the Covid-19 pandemic. Such resilience is reassuring for investors as the world continues to experience challenges of all stripes.

Diving a bit deeper into the nitty-gritty, in the second quarter, Airbnb's sales increased 58% over last year to $2.1 billion, and net income came in at $379 million after a $68 million loss last year. Airbnb generated $2.9 billion in free cash flow over the past 12 months, putting it in excellent position to refine its model and launch new ventures.

Airbnb has been truly disruptive for the travel industry, which in its traditional form often relies on expensive hotels in well-traveled areas. Airbnb's asset-light model means it can add properties to its system without the headache or expense of building new ones. This in turn, can reduce costs for customers. Even more compelling, though, is not just that it can be cheaper, but there can be a full range of budget options for any kind of vacation.

Not being tied to big buildings with many rooms also means that Airbnb can offer rentals anywhere. Whether in rural locations that aren't logical for hotel operators to enter, or hard-to-reach locations that only pull limited interest, Airbnb can more easily tap into unique spaces than its competitors.

Despite the rebound last year, Airbnb is meeting even higher demand. In the second quarter it posted its highest-ever quarterly number for nights and experiences booked at 103.7 million. And long-term stays (28 days or more), continue to be the highest-growing length-of-stay category. That trend -- a result of the growing shift to remote work -- has not moderated for several consecutive quarters.

Management is guiding for full-year sales growth of about 26% year-over-year for the third quarter, when it expects to take in its highest-ever quarterly revenue. At least part of that slowdown is due to a "significant headwind" from currency changes relative to the 2021 third quarter.

Airbnb stock is down 33% this year, and shares are trading at a forward, one-year price-to-earnings ratio of 39x, which is an attractive valuation for a top growth stock. 

Latin American e-commerce giant MercadoLibre continues to post phenomenal performance even as it faces tough year-over-year comparisons. Sales growth has slowed from five consecutive quarters of triple-digit growth at the height of the pandemic to high-double-digit growth. 

In the second quarter, it showed off another round of great results. Sales increased 57% year-over-year to $4.8 billion, and net income rose 453% to $188 million. Unique active users grew from 98 million to 107 million, and there were increases in gross merchandise volume, total payment volume, and total items shipped. In other words, this is a company with momentum. And it looks poised to keep posting robust growth.

Management acknowledged that e-commerce has been slowing down after a period of outrageous growth when people weren't going out. The company is focusing on providing merchants and customers with a best-in-class experiences to generate further growth in challenging times. For example, on the customer side, it has expanded its product selection to offer a diverse assortment, and it offers more products with fast and free shipping. It has also improved its search functionality, which has led to greater customer stickiness. For merchants, it has launched some innovative solutions to offset increased shipping costs, such as MELI Extra, a "crowd-sourced" venture that recruits individuals to make deliveries.

It has also added greater capabilities to its fintech segment, which provides payment solutions for businesses and individuals. QR code payment is seeing greater adoption, and MercadoLibre is offering more services on its digital app, such as asset management. 

That's not to say there aren't any roadblocks. Competition is heating up for the huge Latin American market, and Sea Limited is one competitor that's making progress. Its Shopee e-commerce app was again the top-ranked shopping app in Brazil by time spent in the app, and it jumped to the top for average monthly active users. Brazil has the largest Latin American population with nearly 214 million people, and it's one of MercadoLibre's most important markets. However, MercadoLibre has the first-mover's advantage, and it's taking many steps to keep its leading position, such as the ones outlined above.

MercadoLibre stock is down 33% so far in 2022, but it has been climbing back up, and you can still jump on the bandwagon.

Jennifer Saibil has positions in Airbnb, Inc. and MercadoLibre. The Motley Fool has positions in and recommends Airbnb, Inc., MercadoLibre, and Sea Limited. The Motley Fool has a disclosure policy.

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