MercadoLibre (MELI) – A Once-in-a-Decade Opportunity
Shares of MercadoLibre (MELI) have soared an incredible 6,560% since its IPO in 2007, making it one of the best performers in the e-commerce space. But even with this remarkable growth, the company’s best days could still be ahead. Recent volatility has knocked the stock down 10% despite a solid earnings report, and this pullback could present a rare opportunity to buy this high-growth stock at a discount.
MercadoLibre has been a leader in Latin American e-commerce for years, and the company is well-positioned to capture a large share of the growing $150 billion Latin American e-commerce market. With e-commerce penetration in the region still lagging behind the U.S., U.K., and China by roughly a decade, MercadoLibre is poised to benefit from the rapid growth in online shopping. The company estimates that it will capture over 50% of the incremental growth in the Latin American market, which is expected to grow 50% over the next four to five years. Although the company made substantial investments in building fulfillment centers in Brazil and Mexico—which affected short-term profits—these investments are expected to drive long-term growth and cash flows.
But MercadoLibre’s potential isn’t limited to its current markets. The company still generates the majority of its revenue from just three countries: Brazil, Mexico, and Argentina. Other Latin American countries like Chile, Colombia, Peru, and Ecuador have significant untapped potential, as e-commerce penetration in these markets is still in the single digits. Over time, MercadoLibre is likely to expand its footprint and capture a larger share of these emerging markets, which could lead to even greater growth.
One of the most compelling reasons to consider MercadoLibre today is its robust and improving return on invested capital (ROIC). The company’s ROIC has steadily increased, now standing at 18%. This places MercadoLibre in the top 20% of S&P 500 companies, signaling that the company is not just growing, but doing so efficiently. As MercadoLibre continues to expand its high-margin ad business and scale its logistics network, its ROIC should remain strong, fueling long-term profitability.
Even with its stellar performance, MercadoLibre is trading at an attractive valuation. The company’s price-to-sales (P/S) ratio is currently 5.3, less than half of its historical average. The company’s earnings yield of 1.5% is the highest it’s been since 2017, making this an enticing entry point for long-term investors. MercadoLibre’s growth trajectory is impressive, with monthly active buyer growth reaccelerating to 21% in Q3, its highest level since 2020. With fintech revenue and overall company revenue growing by 35% year-over-year, MercadoLibre’s strong fundamentals make it a standout opportunity.
With its solid financial position, market leadership, and significant growth potential, MercadoLibre looks like a once-in-a-decade opportunity. Despite the recent pullback, the stock’s long-term growth story remains intact, making it an attractive buy at current levels.
