I won't bury the lede: Right now, MercadoLibre (MELI 0.04%) is valued at $29 billion. But I believe that 10 years from now, it could be many multiples larger. It's decidedly not too late to get in.

If you're thinking you missed the boat, I wouldn't blame you. A $35,000 investment 10 years ago would be worth a cool $1 million today -- for those keeping track at home, that's a return of over 2,750%.

But there are three big reasons I believe in the long-term story -- and have backed it up by putting almost 9% of my real-life holdings into MercadoLibre stock.

Rio de Janeiro, seen from the air, with the Cristo Redentor statue at left

Don't fall asleep on Latin America's growing middle class. Image source: Getty Images

1. Its barbell technique

By far the most important is something I learned from reading author (and former trader) Nassim Taleb: the importance of a barbell technique. The idea is that a company should stay away from medium-risk, medium-reward strategies -- and instead focus on the extremes:

  • Devote 80% of your resources to a reliable business that is protected by a wide moat.
  • Devote the other 20% to high-risk, high-reward ventures.

Doing this protects your downside (wide moat), while still leaving you open to finding new lines of business that have enormous potential.

MercadoLibre has already proven its ability to adopt the technique. For most of its operating history, it was simply a marketplace to connect buyers and sellers -- akin to what eBay is in the United States.

That model worked well, as MercadoLibre was able to take a small cut of every transaction -- and network effects meant that it was continually drawing in new buyers and sellers.

Then, when both Walmart and Amazon started moving into Latin America, MercadoLibre started investing aggressively in its fulfillment network. That's paid off, as its free two-day shipping guarantee -- available in a handful of countries -- has led to robust sales growth.

But the big story right now is MercadoPago. This payment option was on the "high-risk, high-reward" side of the barbell more than five years ago, but has now become a mainstay. During the first quarter alone, over $5.6 billion changed hands in 140 million transactions using MercadoPago -- representing growth of 35% in dollar terms and 94% in transaction numbers.

So what else is on the high-risk, high-reward side right now?

  • MercadoEnvios: a shipping platform that uses the company's fulfillment network.
  • MercadoCredito: a financing solution offering consumers and merchants credit that might not otherwise be available.
  • MercadoFondo: an asset management tool that aims to provide Latin America's unbanked a place to store their cash.
  • MercadoLibre Advertising: a platform for placing onsite ads, which could benefit from the same strong forces that are helping Amazon's advertising revenue to boom.
  • MercadoShops: a software-as-a-service solution that helps small businesses build an e-commerce presence.

Will all of these work out? Probably not...but they don't have to. As we've seen with MercadoPago, even one of these proving popular could notably move the needle at MercadoLibre.

2. Its financial fortitude

Of course, if the company didn't have the cash to fund all of these high-risk, high-reward ventures, it wouldn't much matter. But as of March 2019, the company has almost $3 billion in cash and investments and just $745 million in long-term debts, and it has spun out nearly $300 million in free cash flow over the past year.

This means not only that there's sufficient funding to continue reinvesting, but also that MercadoLibre could actually get stronger if there's a recession in Latin America. Under that scenario, the stock would undoubtedly fall. But the company could use its extra cash to push out weaker competition and grab long-term market share.

3. Its skin in the game

Finally, I'm a big believer in companies that are run by founders, have insiders with lots of skin in the game (stock ownership), and have happy employees. MercadoLibre checks all three of those boxes:

  • The company was founded in 1999 by Marcos Galperin, who still runs the company as CEO.
  • Insiders combined (mainly via Galperin's holdings) own 8.1% of shares outstanding. The value of their stake will only increase if those of other shareholders' holdings do.
  • The company gets a four-star (out of five) review by employees on Glassdoor.com; Galperin himself has an 89% approval rating.

A word on how bumpy the ride can get

But be forewarned: When I talk about MercadoLibre being worth many multiples of what it is today, I mean that over the long run. That doesn't mean a month or even a year -- it means at least a decade.

Shares of the company have already doubled this year -- so there's lots of optimism priced in. And when we consider that 2,750% advance over the past ten years, it's worth remembering shareholders had to endure this in the meantime:

Peak Trough Returns
May 2, 2011 Oct. 3, 2011 (46%)
Oct. 21, 2013 May 20, 2014 (44%)
May 4, 2015 Feb. 2, 2016 (44%)

Data source: YCharts.

In all three periods, almost half of investor capital was wiped clean. The same scenario will almost certainly happen again in the next decade -- perhaps with more frequency. If you can't handle volatility like that, MercadoLibre isn't for you.

But those with the fortitude for such volatility have been rewarded. Even if you bought at the three peaks above, for instance, you'd be sitting on returns of 525%, 300%, and 280%, respectively.

If you can stay focused on the big picture, MercadoLibre could still be a "millionaire maker" stock.