MercadoLibre Stock Continues to Struggle for Traction. Is the Stock a Buy on the Dip, or Is It Time to Throw in the Towel?
Shares of MercadoLibre (NASDAQ: MELI) dipped as the company also reported strong revenue growth. Unfortunately for investors, MercadoLibre’s stock has underperformed over the past five years, rising less than 20%, while revenue has increased sevenfold from $4 billion in 2020 to $28.9 billion in 2025.
That’s a huge disconnect between the Latin American e-commerce company’s performance and its stock price. MercadoLibre remains in investment mode to fuel growth, and investors were clearly not happy with that decision. The stock is now down about 18% for the year.
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Let’s take a look at the company’s Q1 results and prospects to see if now is the time to buy the stock or throw in the towel.
Revenue continues to rise, but margins are shrinking
While MercadoLibre’s earnings grabbed the headlines, investors were more concerned about the company’s operating margins, which fell to 6.9%. However, the company made it clear that it is not willing to manage short-term margins at the expense of investing in growth plans to please investors.
MercadoLibre said it has a “next-generation opportunity to transform the way hundreds of millions of people in Latin America buy, pay, and access financial services,” and it will invest aggressively to seize this opportunity. Management also noted that there are no plans to change the current level of investment in the near term.
In terms of revenue growth, its investment is paying off. In the first quarter, MercadoLibre’s revenue increased 49%, or 46% on a constant basis, to $8.85 billion. That was its strongest revenue growth since Q2 2022 and before consensus of $8.32 billion. Its earnings per share (EPS) fell 16% to $8.23 but beat consensus of $8.20.
Among the profit-driven investments the company is lowering its free shipping limit in Brazil and building its infrastructure for equipment and fulfillment in raw markets. In addition, the company also lowers its take-up costs in Brazil from competitively priced vendors. It is also investing heavily in building its fintech and credit card portfolio.
Gross merchandise volume (GMV), which is the amount of goods sold through the e-commerce platform, jumped 42% to $19 billion. Its biggest market, Brazil, saw a 38% jump in GMV revenue, while the number of items sold increased by 56%, double the growth rate before it lowered its free shipping limit. Mexico’s GMV rose 28% in currency neutrality, while Argentina’s GMV jumped 41% and Chile’s GMV rose 40%.
MercadoLibre also continues to see strong growth in its fintech business, with monthly active users growing by 29%. The company also saw its credit card portfolio nearly double year over year to $14.6 billion, as it issued 2.7 million new cards in the quarter. Non-performing loans in the credit card portfolio were stable year-over-year at 8%.
At the same time, its assets under management rose 77% to $20 billion. Total payments through Mercado Pago rose 50%, or 55% in constant currency, to $87.2 billion.
Is MercadoLibre stock a buy?
MercadoLibre is building a mega e-commerce platform and fintech service that is unrivaled in Latin America. The company sees an opportunity in front of it to grow these platforms, and it’s not like how Amazon expanded its e-commerce business as well SoFi build its fintech service operations in the US This company is doing the right thing by investing in its business, which should pay off over time.
From a valuation perspective, the company trades at a forward-earnings (P/E) ratio of 24 based on analyst estimates to 2027 and a price/earnings-growth (PEG) ratio of less than 0.8 (a PEG of less than 1 is generally considered undervalued). That’s attractive, especially for a company that isn’t trying to grow profits yet.
As such, I would be a buyer of the stock, although I think investors will need to continue to be patient.
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Geoffrey Seiler has positions in Amazon and MercadoLibre. The Motley Fool has positions and recommends Amazon and MercadoLibre. The Motley Fool has a policy of disclosure.
MercadoLibre Stock Continues to Struggle for Traction. Is the Stock a Buy on the Dip, or Is It Time to Throw in the Towel? was first published by The Motley Fool
