After MercadoLibre (NASDAQ: MELI ) delivered another year of more than 30% revenue growth in 2025, you might expect the stock to grow. Instead, the stock went the other way.
Why? Because the narrative around MercadoLibre has changed. A few years ago, investors were asking how big the company could get. Today, they question whether it can continue to grow while protecting profitability.
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That shift in sentiment weighed on MercadoLibre stock. But it also raises an important question: Has the market lost too much hope for one of Latin America’s top tech companies?
Image source: Getty Images.
Why are investors so cautious?
MercadoLibre’s business is not slowing down. In fact, in the first quarter, revenue grew 49% year over year. What has changed is that its economy has become difficult.
Over the past year, the company has invested heavily to strengthen its leadership in the e-commerce and fintech spaces in its core markets. It expanded its transportation network, reduced free shipping restrictions in Brazil, and continued to pour large amounts of money into Mercado Pago.
Those investments strengthened the platform, but also increased costs.
At the same time, competition has intensified. Rating of the company Sea LimitedShopee competes hard in Brazil through shipping subsidies and attractive incentives for sellers. PDD Holdings share price‘ Temu is reshaping consumer expectations about price with the cheapest goods shipped from China.
As a result, MercadoLibre’s operating margins came under pressure, almost halving from 12.9% to 6.9%.
In other words, the market is not questioning whether MercadoLibre can continue to grow. It is questionable whether that growth will create long-term shareholder value.
Business is getting stronger
Ironically, if you ignored the stock price and looked only at the operating business, you might conclude that MercadoLibre is stronger today than it was three years ago.
Income is growing at an amazing rate. The total amount of merchandise is constantly increasing. Mercado Pago extends to all payments, lending, investments, and digital banking. Meanwhile, Mercado Ads has become another logical growth engine, allowing the company to monetize its markets effectively.
More importantly, these businesses reinforce each other. The market attracts buyers and sellers. Mercado Pago simplifies transactions while deepening customer relationships. Mercado Envios improves delivery speed and reliability. Mercado ads give sellers another reason to invest in this platform.
Each business becomes more valuable because others exist. That integrated model makes MercadoLibre’s growth difficult to replicate, as competition intensifies.
Has moderation become more popular?
The market’s increasingly cautious stance toward the company has had another effect: Stock valuations have become more reasonable.
During the violence of COVID-19, investors value MercadoLibre as a thriving marketplace with great potential. Today, the company has evolved into a larger and more diversified business, yet it trades at a multiple of 2.9 times sales (PS), well below the double-digit PS multiple seen during the growth period of 2020 and 2021.
That low rating indicates a valid concern. Investors are looking for evidence that today’s big investments will eventually translate into stronger margins, higher earnings, and increased free cash flow.
But this is also where opportunity may lie. If management succeeds in turning investments in today’s materials, fintech expansion, and merchant services into strong long-term economics, today’s valuation may look surprisingly attractive in retrospect.
What does it mean for investors?
Calling any stock a once-in-a-decade buying opportunity sets the bar pretty high.
MercadoLibre has not earned the label with certainty. E-commerce competition remains fierce. Margin pressure may persist longer than investors expect. And Latin America’s macroeconomic environment has never been easy to navigate.
Yet the ingredients for long-term specialty investments remain strong. MercadoLibre benefits from a leading market position, several regional growth drivers, growing network effects, and a management team that is willing to invest for the long term rather than maximizing short-term profits.
The best investments rarely become obvious when expectations are low. They arise when a major business continues to improve while the market focuses on near-term uncertainty.
MercadoLibre probably fits into that category.
Should you buy stock in MercadoLibre right now?
Before buying stock on MercadoLibre, consider the following:
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Lawrence By holds positions in PDD Holdings and Sea Limited. The Motley Fool has positions in and recommends MercadoLibre and Sea Limited. The Motley Fool has disclosure policy.
Could MercadoLibre Stock Be a Once-in-a-Decade Opportunity? was originally published by The Motley Fool
