The market is soaring, but MercadoLibre (MELI +1.27%) is down 30% over the past year. Investors have soured on the Latin American financial technology and e-commerce player because of its aggressive investments, which are eroding profit margins.
It has been left for dead, with shares up only 10% over the last five years, while the broad market S&P 500 index is up close to 100% over the same timeframe. However, it’s at this moment that MercadoLibre looks like a fantastic investment for anyone with a time horizon longer than next quarter. Here’s why you should consider buying even more of MercadoLibre as the stock inches lower.
Today’s Change
(1.27%) $22.12
Current Price
$1764.31
Key Data Points
Market Cap
$89B
Day’s Range
$1751.95 – $1781.03
52wk Range
$1495.00 – $2548.50
Volume
15.3K
Avg Vol
539.4K
Gross Margin
43.86%
Playing the long game
MercadoLibre operates in two sectors with some strong overlap: financial technology and e-commerce. In e-commerce, it is building an “everything store” similar to Amazon in Latin American countries, investing in fast delivery, a wide selection, and a bundled subscription offering.
Its current crop of investments in free delivery for close to all orders in Brazil has temporarily reduced profit margins. At the same time, it has accelerated revenue growth in the country. In Q1 2026, total commerce revenue grew 47% year over year last quarter in constant currency, on top of 57% growth in the same quarter a year ago.
More buyers, more shopping volume, and more revenue are being spent on MercadoLibre’s e-commerce marketplace. This will mean a short-term hit to margins, but it should also lead to a long-term competitive advantage for the business. The same can be said for its MercadoPago consumer finance segment. MercadoPago is accelerating its acquisition of credit card customers to deepen its relationship as a banking application and drive more spending on the MercadoLibre online marketplace.
When a credit card customer is acquired, it requires the bank — in this case, MercadoLibre — to allocate loan losses over the life of the customer relationship, which means an upfront hit to margins if many customers are acquired. With all these new credit card customers, MercadoLibre’s fintech revenue grew 54% year over year last quarter.
Overall, MercadoLibre’s revenue is growing 46% year over year in constant currency, making it one of the fastest-growing large-cap technology players today. However, investors are still not happy because of the short-term hit this accelerated growth has had on profit margins.
Image source: Getty Images.
Why MercadoLibre’s stock is cheap today
Last quarter, MercadoLibre’s overall operating margin fell to 6.9%, and it may fall further in the quarters ahead due to the upfront investments discussed above. This has investors very nervous, but it should not be misconstrued as MercadoLibre losing its lead in e-commerce and consumer finance in Latin America.
Long-term, MercadoLibre should be able to regain or surpass its previous high profit margin of 16%, if not exceed it, due to increased scale, higher-margin fintech revenue, and faster-growing advertising revenue (which is growing faster than the overall business). Combined with a business with a long history of growing revenue at a fast, double-digit rate, it is plausible that the company’s revenue of $31.8 billion could climb to $100 billion over the next five years or so. A 15% profit margin would equate to $15 billion in earnings for MercadoLibre five years from now.
Today, MercadoLibre’s stock trades at a market cap of $88 billion. Assuming the stock trades at 20x earnings five years from now — which is a reasonable level for a fast-growing stock, if not a discount — then MercadoLibre will have a market cap of $300 billion within five years. Buying at today’s market cap would deliver north of 20% annualized returns before dividends or buybacks, likely beating the market. This makes MercadoLibre an easy stock to buy on the dip right now.
