MercadoLibre (NASDAQ: MELI) has been a great stock for patient long-term investors, but has been in a slump since the company’s last earnings report. In the roughly two months since then, MercadoLibre is down about 20%.
While the initial decline was due to a lack of earnings expectations and there are some legitimate concerns about profitability, this could be an excellent time for long-term investors to buy shares. Not only is MercadoLibre’s core business growing at a rapid pace, but there are also some big future catalysts that could multiply revenue several times over in the coming years.
One thing that is important to mention is that MercadoLibre’s stock price is around $1,700, so you will need to use a broker that fractional investing in shares to buy $500 worth of stock. But it can be a great way to put your money to work.
As mentioned, the biggest reason why MercadoLibre fell after earnings is because it failed to meet earnings expectations. The company’s EBIT margin fell 7.4 percentage points year-over-year in the third quarter, due to a combination of increased growth investments and bad debts. And free cash flow was actually negative.
To be clear, this is definitely worth keeping an eye on. But it’s important to recognize that MercadoLibre’s business is still growing quite quickly. The e-commerce marketplace sold 28% more items than a year ago and added more than 10 million active buyers. Mercado Pago’s payment processing business grew 34% year over year and now has an annualized payment volume of more than $200 billion. And last but not least, the young but impressive credit sector now has $6 billion in outstanding loans, up 77% from Q3 2023.
First and foremost, MercadoLibre’s core businesses still have a lot of room to grow. E-commerce penetration in the United States is approximately 16% of total retail sales and is even smaller in the Latin American markets where MercadoLibre operates. The same can be said about the adoption of cashless payments, and there is a large unbanked and unbanked population in this part of the world.
The Latin American market has over 650 million people, about twice the size of the US, and with logistics rapidly improving in the region, this will enable many more online buyers and sellers.
It is also important to mention that MercadoLibre has several other companies that are still in their very early stages and have great potential. The company’s credit card business, part of the aforementioned loan portfolio, has nearly tripled in size over the past year. The investment platform is still in a relatively early stage and saw assets under management increase by 93% in the most recent quarter.
