Shares of MercadoLibre (MELI 3.00%) shot up as much as 16% this week, according to data from S&P Global Market Intelligence. The e-commerce operator with a major presence in Brazil, Mexico, and other Latin American countries posted strong growth and operating leverage in its third-quarter earnings report. After this week's rise, MercadoLibre stock is now up 55% over the past year and off 33.5% from all-time highs.

Strong earnings across the board

It was hard to find anything negative about MercadoLibre's Q3 earnings. The top of its business funnel looked great, with active users up to 120 million compared to 88 million a year prior. Gross merchandise volume on its e-commerce platform hit $11.36 billion, up from $8.6 billion in 2022. Its total payments business is much larger than this due to the huge success of its MercadoPago consumer application, which has tens of millions of users across the Latin America region. Total payment volume hit $47.2 billion just in the third quarter, up 47% year over year.

This all led to MercadoLibre's net revenue reaching $3.76 billion in Q3. With high fixed costs, MercadoLibre's increasing scale has led to strong operating leverage, which was evident in the third quarter. Operating income hit $685 million in the quarter, or an 18% margin, up from 11% in 2022.

What makes this all even more impressive is the fact the company is dealing with major inflation in some of its operating markets, especially Argentina. Argentina's inflation rate is currently over 100%, creating major turmoil for its economy. Despite these major headwinds, MercadoLibre's business in the country has continued to thrive and has not affected its ability to grow its consolidated revenues in U.S. dollars while also generating healthy profits. If the Argentinian headwind ever subsides, it would be a major boost to the e-commerce titan.

Where does the stock go from here?

With the stock up so much, MercadoLibre trades at a premium valuation. It currently has a market cap of $66 billion, making it one of the largest businesses in the world by market value. Even though its profits are reflecting higher, the stock's forward price-to-earnings ratio (P/E) is 68, which is close to three times the S&P 500 average.

MercadoLibre is a great business that is growing quickly, but it trades at a very steep valuation. Even if you like the business, it is probably best to keep the stock on your watch list at these elevated prices.