Stock in MercadoLibre (MELI -0.81%), the largest e-commerce company in Latin America, always seemed too hot to handle. The stock price has rallied more than 2,370% over the past decade, and still trades at about 17 times next year's sales and more than 600 times next year's earnings.

Those frothy valuations prevented me from buying, even as I noticed many of its strengths. However, I recently started a position in this high-growth stock, for five simple reasons.

1. It's not American or Chinese

At the beginning of the year, I still held many American and Chinese tech stocks in my portfolio. However, regulatory headwinds for those companies in both countries convinced me it was time to diversify into other regions.

A tiny parcel with a Brazilian flag placed in a cart atop a laptop.

Image source: Getty Images.

So I sold a few of those stocks -- including China Mobile, Tencent, and Facebook -- and put some of that cash into MercadoLibre as a Latin American play that was shielded from the regulatory headwinds in the U.S. and China.

2. A growing market

MercadoLibre operates in 18 countries, and its top markets are Brazil, Argentina, and Mexico. Several of its markets are struggling with recessions, the ongoing pandemic, and rampant inflation, but the region's online marketplaces still have plenty of room for long-term growth.

E-commerce sales only accounted for 3.1% of total retail sales in Latin America last year, according to Statista. But the firm estimates the market will still grow at a compound annual growth rate (CAGR) of 8.3% between 2021 and 2025 as internet penetration rates rise.

If MercadoLibre matches that CAGR, its annual revenue could rise from $5.4 billion in fiscal 2021 to over $7.4 billion in 2025. Last June, eMarketer predicted the pandemic would be a "watershed moment for e-commerce in Latin America" as 10.8 million consumers across the region made their first digital purchases.

Those estimates indicate MercadoLibre's core business will continue growing, even as currency headwinds throttle its sales in certain markets.

3. Robust growth with irons in the fire

MercadoLibre's number of registered users more than doubled from 144.6 million at the end of 2015 to 320.6 million at the end of 2019. It added another 46.8 million registered users in the first nine months of 2020.

MercadoLibre's annual revenue more than tripled from $651.8 million in 2015 to $2.3 billion in 2019. Analysts expect its revenue to rise 67% to $3.8 billion this year, fueled by robust online sales throughout the pandemic, and grow another 40% to $5.4 billion next year even after the crisis ends.

That revenue will be generated by the secular growth of Latin America's e-commerce market, along with the expansion of MercadoLibre's payments and fintech business, its advertising business, and the expansion of its logistics network with new fulfillment centers and Flex delivery drivers.

4. Stabilizing profits

MercadoLibre hasn't been consistently profitable in recent years, since it continually makes big investments in its digital platforms and logistics network.

But it still generated a slim net profit of $50 million in the first nine months of 2020, as its revenue growth outpaced its spending, and analysts expect it to remain profitable for the full year. Next year, they expect its earnings to more than double even as its revenue growth decelerates.

5. A reasonable valuation

Value-oriented investors might balk at the notion that MercadoLibre is reasonably valued, especially relative to other e-commerce stocks.

Amazon (AMZN -0.17%) trades at just over three times next year's sales, while China's (JD -2.98%) trades at less than one times next year's sales. Both stocks are also cheaper relative to their profits: Amazon trades at 60 times forward earnings and JD has a forward P/E ratio of 40.

But MercadoLibre is still generating stronger revenue growth than JD and Amazon, and the Latin American e-commerce market arguably has more room to grow than China or Amazon's leading markets. MercadoLibre's forward price-to-sales ratio of 17 also looks cheap in a market filled with growth stocks routinely trading at over 30 times next year's sales.

The bottom line

MercadoLibre isn't a stock for conservative investors, and it could remain volatile for years to come. Nonetheless, growth-oriented investors looking for a way to diversify their portfolios beyond the U.S. and China should consider accumulating some shares of MercadoLibre.