Is It Too Late to Buy MercadoLibre Stock?

Globe and Mail

6 hours ago

MercadoLibre (NASDAQ: MELI) stock took several years to reach new highs after dropping over 50% once the air let out of the 2020-2021 stock market bubble, inflated by zero-percent interest rates as part of the COVID-19 pandemic response.
But since hitting new highs late last year, it's been off to the races. Shares of the Latin American e-commerce giant have surged 50% since January.
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You might be wondering whether this is a new chapter for a stock that has returned nearly 9,000% since 2007, or if MercadoLibre is currently in another bubble getting ready to burst.
I dove into the numbers to determine whether it's too late to buy MercadoLibre. Here is what you need to know.
Is this the Amazon of Latin America? There is a resemblance.
One of the most common comparisons you'll see for MercadoLibre is that it's the Amazon of Latin America. MercadoLibre is a leading e-commerce company in Latin America, much like Amazon is in the United States.
However, I think the resemblance goes deeper than you'd guess. Like Amazon, MercadoLibre has expanded beyond its e-commerce business model. MercadoLibre now operates several businesses, including commerce, advertising, logistics, and a fintech unit (Mercado Pago) that offers financial products and services to merchants and consumers.
E-commerce, financial services, and advertising are massive markets. MercadoLibre's push into all three has helped it sustain rapid growth. The company's annual revenue has grown over sevenfold since 2020, and continues to grow at a nearly 37% pace:
MELI Revenue (TTM) data by YCharts
The risk and reward of emerging markets
MercadoLibre has grown so fast, in part, because it operates in Latin America, an emerging market. It's not as economically developed as, say, the United States, where most Americans might take a smartphone, credit card, or basic banking services for granted.
Many people in Latin America still lack access to these modern luxuries; however, the region has made significant strides over the past decade. Internet access and financial inclusion both skyrocketed from the early 2010s to the early 2020s, and the COVID-19 pandemic helped propel Latin American consumers and businesses onto digital banking and e-commerce platforms.
These trends have driven remarkable user growth for MercadoLibre. In Q1 2025, the company's commerce business had 66.6 million unique active buyers, representing a 25% year-over-year increase. Meanwhile, the fintech business had 64.3 million active users, a 31% jump from the previous year.
Emerging markets do have risks, though. Latin American countries don't have nearly the economic firepower of the United States. Brazil and Mexico's GDP per capita are $10,294 and $13,790, respectively. Therefore, MercadoLibre may not be able to monetize its users to the extent that Amazon can with American consumers, for example.
Additionally, the company reports its financials in U.S. dollars, creating a significant drag due to currency exchange fluctuations. In Q1 2025, MercadoLibre grew its total net revenue by 64% year over year on a currency-neutral basis, but reported just 37% growth due to the stronger U.S. dollar.
These headwinds could place more pressure on user acquisition, and MercadoLibre's growth could slow if its robust user growth stalls.
Is it too late to buy MercadoLibre?
Fortunately, MercadoLibre still appears to have plenty of room to expand. There are over 660 million people in Latin America, meaning MercadoLibre only serves about 10% of its addressable market. As the company's stellar Q1 2025 user growth illustrated, that momentum remains plenty strong yet.
Right now, MercadoLibre's valuation should be the primary focus for prospective investors.
Wall Street analysts estimate MercadoLibre will grow earnings by an average of 30% annually over the long term. That's an ambitious growth estimate, but MercadoLibre is firing on all cylinders, so it's a reasonable expectation.
The stock's torrid run since January has elevated its price-to-earnings (P/E) ratio from 45 to 63. It values MercadoLibre at a premium to the broader stock market, but at a PEG ratio of 2.1, I think it's still a reasonable price tag for such a fast-growing business.
MercadoLibre's rapidly expanding top and bottom lines, multiple business segments, and lengthy track record of success are tell-tale signs of a quality business. The stock isn't a bargain following its recent run, but it's certainly not too late to buy and hold this winner.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.