Many growth stocks plummeted recently as the Trump administration's "Liberation Day" tariffs sparked fears of intensifying trade wars and a global recession. But as many investors scramble toward more conservative plays in this sellers' market, it might be the perfect time to take a contrarian view and seek out some bargains.
I believe one of those undervalued growth plays is MercadoLibre (MELI 12.69%), the largest e-commerce company in Latin America. Its stock has already rallied nearly 250% over the past five years, but I think it could surge even higher over the next five years and eventually be crowned as one of the best investments of the 2020s for three simple reasons.
Image source: Getty Images.
1. It's still growing like a weed
MercadoLibre was founded more than 25 years ago, but it grew like a weed by establishing a first mover's advantage in Latin America's nascent e-commerce market. It expanded its logistics networks across challenging terrain and underdeveloped regions, and it now operates its marketplace across 19 Latin American countries. Most of its customers are located in its home market of Argentina, Brazil, and Mexico.
From 2019 to 2024, MercadoLibre's revenue grew at a compound annual growth rate (CAGR) of 55% in USD terms. Its number of annual unique buyers surged from 44 million in 2019 to 100 million in 2024. That breakneck expansion prevented its overseas competitors, including Amazon (AMZN +0.55%) and Sea's (SE 2.15%) Shopee, from gaining much ground in the region.
NASDAQ: MELI
Key Data Points
It also locked many of those customers into its Mercado Pago digital payments platform, which became the bedrock of its fintech ecosystem -- including Mercado Crédito's lending services, crypto trading tools, and its own Mercado Coin digital currency. It served 61 million active fintech users across those services at the end of 2024. It even applied for a banking license in Mexico last September, which could pave the way for it to challenge Nu (NU 3.33%) Bank, the largest direct bank in Latin America.
From 2024 to 2027, analysts expect MercadoLibre's revenue to grow at a CAGR of 22% in USD terms. Its business is gradually maturing, but it could still have plenty of room to grow as internet penetration rates and income levels rise across Latin America.
2. Its operating margins and profits are rising
MercadoLibre turned consistently profitable on a generally accepted accounting principles (GAAP) basis in 2021, and its net income grew at a stunning CAGR of 184% in USD terms over the following three years. From 2024 to 2027, analysts expect its net income to continue rising at a CAGR of 31%.
MercadoLibre's profits surged as it sold more profitable products on its first-party marketplace, expanded its higher-margin third-party marketplace, generated more revenues from its higher-margin credit and advertising businesses, and leveraged its scale to dilute its logistics, payment processing, and marketing costs. Those soaring profits should drive its ongoing expansion.
3. It's still reasonably valued relative to its growth potential
MercadoLibre trades at $1,826 per share as of this writing. That price might seem lofty, but it's only valued at 38 times this year's earnings and 27 times next year's earnings. In comparison, Amazon -- which is growing at a much slower rate than MercadoLibre -- trades at 27 times this year's earnings and 23 times next year's earnings.
MercadoLibre, like Nu and other high-growth Latin American stocks, still faces inflationary, political, and currency-related headwinds across its core markets. Those concerns are likely compressing its near-term valuations, and the Trump administration's shifting trade policies and unpredictable tariffs are exacerbating that pressure.
Where will MercadoLibre's stock be in five years?
MercadoLibre needs to overcome a lot of near-term headwinds. But assuming it matches analysts' expectations through 2027, grows its earnings per share at a robust CAGR of 20% over the following three years, and trades at a reasonable 25 times forward earnings, its stock could roughly double to about $3,646 per share by the beginning of 2030. That would represent a six-bagger gain from its opening price on the first day of 2020.
Assuming the Latin American market stabilizes and the region's highest-growth stocks command higher premiums again, MercadoLibre's stock could surge even higher. Therefore, I believe it could be one of the best investments of the decade -- but it's best suited for patient investors who can ride out the volatility and tune out the near-term noise.
