Investors usually look at the lows of past stock market crashes and think, “If only I could have bought stocks at these prices.” While the market may not be at its lowest today, it is certainly possible that investors will see historically low prices given that the Nasdaq Compound the index is down more than 31% from its highs, and the Dow Jones Industrial Average is down 19%.
Whether the market is bottoming or not, there are still absurdly cheap stocks available to investors today. MercadoLibre (MELI -4.11%) and Figs (FIGS -5.84%) are two that particularly stand out. The current valuations of these stocks could be unique opportunities, and you may not want to miss these incredibly cheap prices.
This Latin American e-commerce and fintech giant looks like a godsend if ever there was one. The company fell alongside other fintech and e-commerce stocks, bringing its valuation down to just 4.9 times its sales. MercadoLibre has only reached such a low valuation twice in its history as a public company (dating back to 2007). Those times were earlier this year and in 2009. Moreover, its current valuation is several times lower than its historical average price-to-sales (P/S) ratio of 11.5.
This valuation is not due to poor performance. MercadoLibre had an exceptional second quarter, highlighted by revenue growth of 56.5% year-over-year to $2.6 billion on a currency-neutral basis. The company’s fintech platform, Mercado Pago, led the charge. Pago saw an 84% year-over-year increase in total payment volume in the second quarter, and the number of active fintech users increased 26% from the year-ago quarter.
This surprised investors who expected a drop in activity as most e-commerce platforms saw. However, MercadoLibre operates in Latin American countries like Brazil, Argentina and Mexico. Despite a tough global economy, these countries have continued to embrace e-commerce at an incredibly high rate. Retail e-commerce sales in these three countries have jumped between 18% and 22% year-over-year in 2022 so far, compared to 16% growth over the same period in the United States. This rapid large-scale adoption likely helped MercadoLibre post better-than-average results.
Despite this high adoption, the prevalence of e-commerce in these Latin American countries is still relatively low with a penetration of around 11%. This leaves a huge opportunity for MercadoLibre to be one of the main beneficiaries of this emerging sector, alongside other sectors like fintech.
Considering that MercadoLibre is one of the fintech and e-commerce leaders in Latin America, with more than 84 million consumers using at least one of its products, the company seems poised to capitalize on this emerging region. Even if you only have a few hundred dollars, it might be a good idea to acquire a partial share of this company at this shockingly low valuation.
Figs have also fallen this year, falling nearly 66% year-to-date on investor fears of rising inflation. Figs sells high-end scrubs for healthcare workers, so many investors believed the company would see demand fall off a cliff as consumer budgets tighten.
This drop brought the figs back to an absurdly low price. The company trades at just 4.7 times gross profit, well below other apparel stocks like Nike Where Lululemon Athleticaboth of which trade above seven times gross profit.
Not only is this company cheap, but its margin profile is staggering. Figs maintained a gross margin above 70%, well above most apparel stocks. For example, Lululemon, a company known for selling expensive clothing at a high margin, only has a gross margin of 56.5%. This fell to the bottom line where Figs is making slight profits. Over the past 12 months, Figs has generated $33 million in net income and nearly $4 million in free cash flow. Considering the company is primarily focused on gaining market share and not profit at this point, any sign of profitability is impressive.
Figs also saw continued high consumption activity in 2022 despite the difficult macroeconomic backdrop. In the second quarter, sales rose about 21% year over year to $122 million, and active customers jumped 26% to 2 million.
If the company can continue to build its brand by creating high quality products and keeping customers excited about its products, the future could be very bright for Figs. With its high margin profile and easy path to profitability, investors could see fantastic benefits if they bought at these bargain prices and held them for the long term.
Jamie Louko holds positions at FIGS, Inc. and MercadoLibre. The Motley Fool holds positions and recommends Lululemon Athletica, MercadoLibre and Nike. The Motley Fool has a disclosure policy.