Imagine this: You own shares of a multinational e-commerce company. The outfit has been growing like a weed; in the most recent quarter, revenue jumped by 65% in local currencies, and it currently has a war chest twice the size of its long-term debt obligations.

And when these fabulous results were announced...the stock dropped mercilessly, over 20% in the course of a week.

I believe this offers a great opportunity for long-term investors. Indeed, I have already called out this company -- Mercadolibre (NASDAQ:MELI) -- as a company I would buy on a dip. And when Foolish trading rules allow, I'll be making good on that pledge. Let's dig into why.

A view of Sao Paulo from the air

Cities like Sao Paulo are very important for Mercadolibre. Image source: Getty Images

But first, why the plunge?

With such impressive top-line figures and a powerful balance sheet to boot, it's worth investigating why shares fell as fast as they did following earnings. I believe the answer is two-fold.

First, Mercadolibre counts Venezuela as its fourth-largest contributor. Though the country now contributes less than 5% of overall sales, the upheaval and strife in the country have taken their toll on Mercadolibre. Last quarter, the company booked a $22 million loss as a result of the devaluation of the bolivar. That worked its way to the bottom line, helping non-GAAP earnings per share drop by 67% for the quarter.

Additionally, it's becoming clearer that Mercadolibre is going to have to do some serious investing in infrastructure if it is going to fend off's (NASDAQ:AMZN) ambitions in the region. Just this year, free shipping became a feature for certain buyers in Brazil and Mexico -- the company's first and third-largest markets, respectively -- as well as Chile. Fulfillment by Mercadolibre -- almost the exact same name used by Amazon with its own moniker -- is helping establish the company's network before Amazon can even get a footing.

Though this is necessary, it won't be cheap. Even after backing out the effects of the bolivar's devaluation, earnings would have been down 18% for the quarter. Part of that is due to the fact that gross margins contracted a whopping 907 basis points during the second quarter.

Commenting on the rather drastic move, CFO Pedro Arnt said:

The main drivers of margin compression during the second quarter can be attributed to higher investments in our free shipping initiatives in Brazil, Mexico, and Chile.

The combination of these two factors, along with the fact that shares had almost doubled in the year, sent investors scurrying for the exits.

Why I'm buying

I have already highlighted seven reasons I believe any investor can buy shares of Mercadolibre and confidently hold them for the long-run. Here's a brief summary:

  1. The company's mission is simple, inspirational, and optionable.
  2. Business momentum shows a strong network effect at play.
  3. There's a massive and growing opportunity for e-commerce in Latin America.
  4. The company has several lines of business, including the marketplace, MercadoPago (payment service), and MercadoEnvios (shipping), to name a few.
  5. Founder Marcos Galerpin, who owns over 9% of shares outstanding, is still at the helm as CEO.
  6. Employees are happy to be there.
  7. The aforementioned balance sheet is strong, which will be crucial for a battle with Amazon.

But for long-term investors, I simply think you should consider these two facts. Here's a look at the momentum that Mercadolibre has on some of the most important metrics.

Strong Momentum at Mercadolibre

Now consider that, while the stock may look expensive on traditional metrics -- currently trading for 36 times trailing free cash flow -- it also has a market cap of just over $10 billion. Amazon, by contrast, trades for over 45 times that amount.

I'm not saying that Mercadolibre will ever reach that level. Rather, if it is able to dominate the e-commerce, e-payment, and shipping niche in Central and South America that Amazon has everywhere else, I believe it will be worth far more than $10 billion in a decade or so. I plan on putting (even more of) my money where my mouth is with that belief.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.