With 2023 almost a third of the way over, some stocks have separated themselves from the pack in terms of performance. MercadoLibre (MELI -1.18%) is one of them, up over 50% since the calendar flipped to 2023.

While shareholders are thrilled with its performance, many might wonder if they can still buy the stock without overpaying. While you can't get the stock as cheaply as you used to, it still looks attractive. Here's why.

Slowing the growth of one of its divisions

MercadoLibre is the e-commerce leader in Latin America but is also so much more. Like Amazon (NASDAQ: AMZN), it has a logistics network to deliver packages. The scale of this wing is also quite impressive as 51% of packages were delivered in two days or less during the fourth quarter.

Beyond just pure commerce, MercadoLibre has an impressive financial services wing, too. Mercado Pago is a peer-to-peer and consumer-to-business network that processed $36 billion in payments in the fourth quarter. Compared to PayPal's (NASDAQ: PYPL) $357 billion in the fourth quarter, MercadoLibre doesn't have nearly the same scale. But its payment platform is dominant in its region and excels at what it does, as shown by its 49% year-over-year growth in total payment volume.

The new cash cow in MercadoLibre's fintech wing is its consumer credit division. In the fourth quarter, credit revenue increased MercadoLibre's fintech take rate (how much money it takes from each processed transaction) by 0.32 percentage points to 3.73%.

However, MercadoLibre has stopped growing its credit portfolio as it is learning to manage the risk it has taken on. As a result, its ludicrous growth in fintech revenue will likely slow down throughout 2023. For reference, MercadoLibre's slowest fintech growth rate in 2022 was 93% in the fourth quarter.

With a known revenue slowdown coming, will it affect the stock?

Looking at previous periods of slower growth

Wall Street analysts still expect MercadoLibre to perform quite well in 2023 with 15 analysts forecasting an average of 24.1% revenue growth. The strength is also expected to continue into 2024 with a 23.7% growth forecast.

As MercadoLibre's growth opportunities narrow, investors will expect it to become more profitable, which it has already begun doing. In the fourth quarter, net income margin rose from a 2.2% loss in 2021 to a 5.5% profit in 2022. This validated the trend seen over the past two years, with earnings per share (EPS) rising over the past two years and expected to grow rapidly over the next two years.

Year Earnings Per Share
2021 $1.67
2022 $9.57
2023 (Projected) $16.86
2024 (Projected) $24.13

Source: MercadoLibre and Yahoo! Finance.

This should help its price-to-earnings (P/E) ratio reach normal levels as the stock currently trades at a lofty 134 times earnings. If you use forward projections, the stock still trades at an expensive 76 times and 53 times 2023 and 2024 earnings, respectively.

Although these prices sound expensive, they don't factor in MercadoLibre's growth rate. With the company expected to grow sales by over 20% in 2023 and 2024 while it hasn't reached peak profitability, the P/E isn't the best way to value the stock.

Instead, we can use the price-to-sales (P/S) ratio to better understand the historical valuation of the stock with respect to its growth rates.

MELI Revenue (Quarterly YoY Growth) Chart

MELI revenue (quarterly YoY growth) data by YCharts. YoY = year over year.

When MercadoLibre consistently grew revenue in the 20% range (from 2013 to 2016), the stock traded for around 8 times sales at the low end. With the stock only trading for 6 times sales today, it's not valued as highly as it used to be.

This signal should give investors the green light to buy the stock even though it has had a stellar 2023 so far. MercadoLibre's best days are still ahead of it, and investors should take the opportunity to get into the stock before it returns to its normal valuation range.