Over the past four months, inflation, rising interest rates, and other macro and geopolitical shocks have crushed many growth stocks. Some of those stocks deserved to fall because they traded at unsustainable valuations, but others were babies that were tossed out with the bathwater.

One of those growing babies was the Latin American e-commerce leader MercadoLibre (MELI -1.43%), which saw its stock plummet to its lowest levels in nearly two years this February. It subsequently rebounded more than 40%, but remains nearly 40% below its 52-week high.

A child counting bags of money.

Image source: Getty Images.

MercadoLibre's stock is undeniably volatile, but I'll explain why it's still my top growth stock to buy in this challenging market.

A market leader with a first-mover's advantage

MercadoLibre operates in 18 Latin American countries, and it's the leader in terms of unique visitors and pageviews across all of its major markets. It generates most of its revenue in Brazil, Argentina, and Mexico.

MercadoLibre was founded in 1999 and established a first-mover's advantage in Latin America with the support of major investors like eBay (EBAY 1.16%). Its development of a diversified logistics network with drop shipping, cross-docking, flex, and first-party fulfillment options enabled it to establish a much broader reach than its smaller competitors.

That first-mover's advantage made MercadoLibre's brand synonymous with e-commerce across Latin America and enabled it to benefit from rising internet penetration rates and income levels across the region, and helped it fend off formidable overseas challengers like Amazon (AMZN -0.56%).

MercadoLibre also tightly tethered shoppers to its ecosystem with Mercado Pago, a digital payments platform that was initially launched in 2003 and subsequently expanded to include off-site transactions. So in addition to being Latin America's leading e-commerce play, MercadoLibre also represents a smart long-term investment on the region's growing fintech market.

Explosive past and future growth rates

Between 2011 and 2021, MercadoLibre's annual revenue grew at a compound annual growth rate (CAGR) of 37.2% to $7.07 billion.

During that decade, its gross merchandise volume (GMV) grew at a CAGR of 19.4% to $28.4 billion as its total payment volume (TPV) increased by a CAGR of 69.2% to $77.4 billion. Investors have been paying attention: MercadoLibre's stock has soared 1,160% over the past 10 years.

It could be tough for MercadoLibre to replicate those multibagger gains over the next few years, but it's still well-poised to benefit from several secular tailwinds.

First and foremost, the Latin American e-commerce market is still underpenetrated after all these years. Morgan Stanley expects the region's e-commerce penetration rate to nearly double from just 9% in 2021 to 16% in 2025, then gradually increase to 50% over the next few decades. By comparison, China currently has an e-commerce penetration rate of about 30%.

The total GMV of Latin America's e-commerce market could also grow 29% between 2020 and 2024, according to Americas Market Intelligence (AMI), with 30% growth in Brazil, 32% growth in Argentina, and 27% growth in Mexico. That's why analysts expect MercadoLibre's revenue to rise to $16.5 billion in 2024, which would represent a CAGR of 32.6% over the next three years. They also expect its operating margin to expand from 6.2% to 9.5% as its net income grows at a CAGR of 135.9%.

We should take those analysts' long-term estimates with a grain of salt, but they strongly suggest that MercadoLibre still has plenty of room to grow, even as new competitors like Sea Limited's (SE 0.53%) Shopee enter its backyard.

The stock has gotten too cheap to ignore

MercadoLibre trades at just six times this year's sales, which is very reasonable relative to analysts' expectations of more than 30% revenue growth. Sea, which is also expected to generate more than 30% top-line growth over the next two years, trades at five times this year's sales.

Both emerging market e-commerce stocks traded at much higher valuations last year -- but they were both torpedoed by concerns about a post-lockdown slowdown and the broader downturn in high-growth tech stocks.

However, I think the market's view is myopic and neglects MercadoLibre's long-term strengths. With a market cap of just over $60 billion, I believe the Latin American e-commerce and fintech leader still has plenty of upside potential and should remain a top holding for growth-oriented investors.