Is it too late to buy MercadoLibre shares?

MercadoLibre (MELI -1.88%) the company’s stock has tripled over the past five years. The e-commerce and fintech leader in Latin America has impressed investors with rapid sales growth, rising margins and rising profits. It gained more buyers throughout the pandemic and continued to grow even as inflation rocked its core markets.

But is it too late to buy MercadoLibre stock today? To make a decision, let’s take a fresh look at his activities.

It is still a hyper-growth company

MercadoLibre was founded almost 25 years ago, but it is still developing dynamically. From 2013 to 2023, gross merchandise volume (GMV) grew at a compound annual growth rate (CAGR) of 20%, total payment volume (TPV) achieved a CAGR of 54%, and total revenue CAGR was 41%. . This growth was driven by the expansion of Mercado Pago’s online marketplace and payment platform in 18 countries.

The company’s early-stage advantage gave it an edge over regional and foreign competitors, many of which had difficulty scaling their logistics networks in Latin America’s less developed infrastructure and challenging terrain. Rising income levels and internet penetration rates have further boosted its growth.

Over the past year, MercadoLibre’s GMV, TPV and revenue have grown on the back of high double-digit and triple-digit interest rates on a currency neutral basis. This growth was mainly driven by its three largest markets: Brazil, Argentina and Mexico.

Data source: MercadoLibre. Currency neutral terms. YOY = year by year.

In the first quarter of 2024, the number of unique active buyers increased by 15% year-over-year to 53 million, as did the number of fintech monthly active users (MAU) who use the Mercado Pago payment platform, Mercado Crédito lending services, cryptocurrency trading tools , and the Mercado Coin token – increased by 36% to 49 million. It also continued to expand its Prime-like MELI+ service (offering retail and digital services in exchange for loyalty points or monthly fees) to attract more customers and widen its moat.

Unlike many other high-growth e-commerce and fintech companies, MercadoLibre has remained profitable on a generally accepted accounting principles (GAAP) basis for the past three years. Its margins grew as it sold more profitable products in its own market and expanded its higher-margin external market, lending business and advertising platform. As market share has grown, economies of scale have further eroded the costs of logistics, payment processing, and marketing.

Still has a lot of room to grow

MercadoLibre is having a great run, but according to Mordor Intelligence, the e-commerce market in Latin America could still grow at a CAGR of 19% from 2023 to 2028. Analysts expect the company’s revenues to grow at a CAGR of 24% from 2023 to 2026 – even in the face of acute currency headwinds in its core markets (especially Argentina) – as GAAP EPS grows at a CAGR of 48 %.

For comparison, analysts expect Amazon – which has sought to loosen MercadoLibre’s grip on the Latin American market – grow its revenues at a CAGR of 11% from 2023 to 2026 with EPS growth at a CAGR of 37%.

Based on these estimates, MercadoLibre trades at 49 times forward earnings, while Amazon has a lower forward multiple of 39. Looking ahead, MercadoLibre and Amazon trade at 27 and 24 times 2026 earnings, respectively.

In other words, MercadoLibre stock isn’t cheap, but it could still have a lot of upside potential as Latin America’s e-commerce market grows. It doesn’t have a higher-margin cloud business like Amazon to lean on, but the continued expansion of its third-party, fintech, advertising and crypto businesses should continue to boost profits.

It’s not too late to buy MercadoLibre shares

For now, the main challenges for MercadoLibre are inflation, currency devaluation issues and other macroeconomic issues in Latin America. The strength of the US dollar, supported by high interest rates, is exacerbating this pressure.

However, MercadoLibre has great growth potential. As income levels and Internet penetration rates increase across the region, it may continue to expand beyond its three core markets and may also absorb smaller competitors and enter even more adjacent markets. It’s definitely not too late to buy these growth stocks, although they may remain volatile over the next few years.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Leo Sun has positions at Amazon and MercadoLibre. The Motley Fool covers and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.