What happened

MercadoLibre (NASDAQ:MELI) stock climbed 14.4% in December, according to data provided by S&P Global Market Intelligence, following strong third-quarter results in November and new, favorable analyst coverage. It gained 101.5% in 2017 and closed the year out in the neighborhood of a new all-time high.

A mobile phone displaying a shopping cart icon, with a city landscape in the background.

Image source: Getty Images.

So what

Shares climbed 8% on Dec. 13 following the release of an analyst note from a Piper Jaffray analyst that raised the price target on the stock from $268 to $330. MercadoLibre's valuation continued to climb through Dec. 20 and then saw a sell-off following the publication of a note from Citigroup that downgraded the stock from a neutral rating to a sell and revised its price target from $260 to $230.

However, the ratings downgrade from Citi was not enough to reverse MercadoLibre's December climb. The company was coming off encouraging quarterly results in the previous month, recording a 60% sales increase and earnings per share that topped the average analyst estimate. Its core business and related growth ventures appear to be thriving, with total item orders through its platform up roughly 56% last quarter and payment volume through its MercadoPago online payment service up roughly 69%.

Now what

MercadoLibre's business is in a strong position, but faces increasing competition as rival online platforms and brick-and-mortar retailers shift resources to bolster their e-commerce presence. The possibility that Amazon.com will make more aggressive moves in the Latin American market is likely the biggest threat facing MercadoLibre, and a more competitive market could force it to continue offering free shipping and other promotions that eat into earnings growth.

To some extent, this threat is already becoming a reality -- with Euromonitor reporting that Amazon recently surpassed MercadoLibre's market share in Mexico. On the other hand, MercadoLibre likely has operational advantages in its native market and has already built a thriving ecosystem that combines online sales platforms, shipping, payment, financing, and advertising.

With shares valued at 110 times forward earnings and roughly 7.4 times forward sales, MercadoLibre is priced for lofty growth. However, the Latin American e-commerce market will likely continue to expand at a rapid clip, and the company's potential to capitalize on that momentum makes the stock worthy of consideration for growth-seeking investors.

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.