MercadoLibre (MELI 8.41%) has been an outstanding growth stock, delivering a remarkable 342% return (as of this writing) to investors in the last five years.
But is now a good time to buy the stock for those who missed the boat? Before making the next move, let's explore the bull and bear arguments.
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Bull case
Founded as an e-commerce company, MercadoLibre has become a massive tech conglomerate with businesses in other areas such as fintech and logistics.
This diversified business structure offers significant advantages to the company. With MercadoLibre's ever-growing suite of products and services, consumers can begin by buying products on its online marketplace and over time adopt other services such as payments and loans offered by its fintech arm, Mercado Pago. As users adopt more products, they generally become stickier to the company.
MercadoLibre also provides high-quality logistics services at a low cost to e-commerce customers. An affordable and reliable delivery service helps improve customer satisfaction, which fuels e-commerce transaction growth.
Besides its business model, MercadoLibre's other advantage is its owner-operator structure. Led by its founder and CEO, Marcos Galperin, the company can focus more on achieving a long-term strategic vision rather than focusing too much on short-term goals.
For example, MercadoLibre has been investing heavily in building its logistics network to improve its long-term competitive edge, even though such huge investments may impact short-term financial performance.
Moreover, most founder-CEOs have additional motivation beyond financial gains, so they go the extra mile to build their companies. Galperin, who has spent more than two decades running the business, likely has deep emotional connections and commitments to the company.
These advantages explain MercadoLibre's solid execution over the years. For perspective, revenue grew from $2.3 billion in 2019 to $20.8 billion in 2024, a rise of 805%. If it can maintain these advantages, the company will be well-positioned to continue riding the digitalization trend in Latin America.
NASDAQ: MELI
Key Data Points
Bear case
MercadoLibre has a solid track record of growth, which could continue for a while. Still, investors should understand the risks associated with investing in this company.
To start, it operates in emerging Latin American economies, which exposes it to political risks, inflation, and currency instability.
Take Argentina, for example. The country has been facing monetary issues that have led to massive currency devaluation. Brazil, MercadoLibre's largest market, has high interest rates, which would impact customer spending. These are risks that investors cannot diversify away from, so they have no choice but to bear them.
MercadoLibre also faces increasing competition from other emerging players such as Shopee, Temu, and Shein. Shopee is a heavyweight e-commerce player in Southeast Asia, while other two are leading players in China, a market known for its highly competitive e-commerce environment.
While MercadoLibre has numerous advantages, such as scale, a strong consumer brand, and local market knowledge, the newcomers have deep pockets and a desire to succeed. If MercadoLibre fails to keep its users happy, it could lose market share to these competitors.
It doesn't help that MercadoLibre's stock trades at a premium to its peers. For perspective, it has a price-to-earnings (P/E) ratio of 51 times, much higher than Amazon's P/E ratio of 34 times. Amazon is a leading tech company with a hugely successful cloud computing business.
With its premium valuation, MercadoLibre must execute well to meet investors' high expectations. Failing to do so for even one quarter could lead to a downward revaluation of its stock.
What it means for investors
MercadoLibre has all the ingredients of a growth company: a strong business model, proven leadership, and solid opportunities ahead.
The downside is that the company operates in an emerging market that is exposed to additional risks, and competition is intensifying in this region. What's more, the stock is not trading at a bargain level.
MercadoLibre is not for the faint-hearted, so investors must examine their risk appetite before buying it.
