I started to invest in MercadoLibre (MELI -3.77%), Latin America's largest e-commerce company, back in March 2021. I continued to accumulate more shares throughout 2021 and 2022, and that position now accounts for nearly 8% of my portfolio.
With an average purchase price of $1,253 per share, I'm sitting on an unrealized gain of about 106% as of this writing. However, I don't plan to trim or sell this top holding for three simple reasons.
Image source: Getty Images.
1. It has plenty of room to grow
MercadoLibre, which was founded in 1999, now operates across 19 Latin American countries. Most of its customers are located in Argentina, Brazil, and Mexico. It was founded in Argentina, but is currently headquartered in Uruguay and has been mulling a move to the United States.
MercadoLibre established an early mover's advantage by building its logistics networks across undeveloped infrastructure and challenging terrain. That expansion locked in its shoppers long before Amazon (NASDAQ: AMZN) and its other overseas competitors considered entering the market.
It also expanded its fintech ecosystem with its digital payment platform Mercado Pago and credit platform Mercado Crédito, as well as its other digital wallet and crypto trading services.
From 2021 to 2024, its revenue grew at a compound annual growth rate (CAGR) of 43%. It reached more than 100 million annual unique active buyers and 60 million fintech monthly active users (MAUs) at the end of 2024, but that only represents a fraction of the 451 million adults who live in Latin America and the Caribbean. As income levels and internet penetration rates rise across the region, MercadoLibre should gain even more shoppers and fintech users.
According to Grand View Research, the Latin American e-commerce market could continue to expand at a CAGR of 16.7% from 2024 to 2030. IMARC Group expects the region's fintech market to expand at a CAGR of 15.9% from 2025 to 2033. From 2024 to 2027, analysts expect MercadoLibre's revenue to grow at a CAGR of 24% as it rides high on those secular tailwinds.
2. Economies of scale are kicking in
From 2018 to 2020, MercadoLibre turned unprofitable as it aggressively ramped up spending on its logistics, fintech, and technology platforms. Marketing expenses also climbed as it intensified margin-crushing promotions to gain new customers.
But in 2021, MercadoLibre turned profitable again. Net income subsequently grew at a CAGR of 185% over the following three years. Profits rose as the company sold more profitable products on its first-party marketplace, expanded its higher-margin third-party marketplace by attracting more merchants, and generated more revenue from its higher-margin credit and advertising segments; it also leveraged its prior investments to dilute its logistics, payment processing, and marketing costs. From 2024 to 2027, analysts expect MercadoLibre's EPS to grow at a CAGR of 34%.
As MercadoLibre flourished, many of its competitors struggled. Its top competitor in Brazil, Americanas S.A., was rocked by a disastrous accounting scandal over the past two years. Singapore's Sea Limited, which launched its Shopee marketplace in Latin America in 2019, scaled back its ambitions over the following years as it racked up steep losses. Amazon, which arrived in 2012, hasn't gained much of a foothold either.
3. It looks cheap relative to other high-growth stocks
MercadoLibre's stock trades at about $2,579 per share as of this writing. Yet it still looks reasonably valued relative to its growth potential, at 52 times this year's earnings and 4.8 times this year's sales.
For reference, Amazon -- which is growing at a much slower rate -- trades at 33 times this year's earnings and 3.2 times this year's sales.
With a market cap of $131 billion, MercadoLibre is also still tiny compared to other e-commerce heavyweights like Amazon and Alibaba, which are worth $2.17 trillion and $299 billion, respectively. That lower market cap, along with its rapid growth rates and reasonable valuations, might give it a bit more upside potential than those market leaders.
It's still a great long-term investment
MercadoLibre is usually a volatile stock, and its valuations are likely being squeezed by persistent concerns about inflation, political unrest, and other macro headwinds in Latin America.
But if you expect it to keep dominating the region's booming e-commerce and fintech markets, it's still one of the best growth stocks to buy, hold, and forget for the next decade.
