Where Will MercadoLibre Stock Be In 5 Years?

MercadoLibre, Inc. (NASDAQ:MELI), also known as “the eBay of Latin America,” is one of the biggest online marketplaces and fintech companies in the region.

For more than 20 years, it has led the way in e-commerce and digital payments across Argentina, Brazil, and Mexico among other Latin countries.

Its market dominance, that includes 100 million unique active users, can be largely attributed to its high brand value.

It’s popular with investors, too, who often regard MercadoLibre as the next Amazon because of the company’s dominance in its market, growth prospects, diversification, innovation, and long-term focus.

MercadoLibre’s e-commerce and digital payments dominance in Latin America and its growing services sector mimic Amazon in some ways too. 

So, with a history of delivering stellar returns to long-term investors, what does the future hold?

Stunning Stats Posted by Mercadolibre

As per Statista, the gross merchandise volume (GMV) generated by MercadoLibre was forecast to account for more than a quarter of all e-commerce sales in Latin America by 2023.

Also, MercadoLibre accounted for almost 48.5% of Latin America’s digital retail media advertising revenues in 2023, up from 38% a year earlier.

Those impressive statistics are on the back of proven success during the challenging 2020-21 era too. At that time, demand for online sales and digital transactions soared and MercadoLibre was viewed as a convenient shopping option, which resulted in soaring traffic and sales.

The company’s infrastructure and service varieties, such as marketplace, digital payment platform (Mercado Pago), and logistics services (Mercado Envios) adapted to the new needs of the customers and combined to strengthen its market position.

That period also catalyzed a digital adoption in Latin America leading to higher consumption of MercadoLibre’s services. This led to exponential growth and increased market share across the region.

Net revenue grew by 77.9% for the year ended December 31, 2021, when compared to the same period in 2020. While the growth rate was muted in the following years, it remained impressive. Net revenues grew 49.1% year over year in 2022 and 37.4% year over year in 2023. Gross profit margins also stayed steady just shy of 50%.

For the quarter ended March 31, 2024, net revenues stood at $4.3 billion, up 36% year over year, while Gross Merchandise Volume was $11.4 billion, a 20% increase year-over-year.

Fintech Growth Accelerates

MercadoLibre’s expansion into fintech has the potential be a substantial growth driver. Integration of financial services is helping the business establish new revenue channels and develop value propositions.

Mercado Pago, the fintech enterprise of MercadoLibre, facilitates electronic payments, credit, and mobile wallets. Apart from reducing reliance on e-commerce, it also enhances user engagement and opens new avenues for revenue generation.

Mercado Pago’s position continued to strengthen in the first quarter of this year, with the growth in monthly active users accelerating to 38% from 32% in Q4 2023.

The company is seeing better retention and higher user and engagement trends. Plus, assets under management grew strongly by 90% year over year in the first quarter.

Is MercadoLibre Undervalued?

A price-to-earnings multiples analysis pegs fair value for MercadoLibre at $1,518 per share, right in line with where it currently trades. Looking to price-to-sales multiples puts fair value closer to $1,835 per share.

Those numbers would suggest MercadoLibre is either right in line with fair value or slightly undervalued. A 10-year discounted cash flow analysis reveals a $1,546 per share price target is reasonable to expect.

MercadoLibre is currently valued at 49x non-GAAP forward earnings, which seems pricey compared to its peers. 

It is trading at 4.41x forward sales, which is again more than 400% higher than the industry median but around 53% lower than the five-year average of 9.55x.

Where Will MercadoLibre Stock Be In 5 Years?

A 5-year discounted cash flow forecast analysis implies that MercadoLibre stock will be at $1,579 per share in 5 years.

It should be noted, however, that the consensus among analysts is for MercadoLibre share price to rise to as high as $1,966 per share before entering overvaluation territory.

It’s clear that, in spite of a long and glorious run over the past decade, new investors still have the very real potential to benefit from investing in MercadoLibre shares. Indeed the company’s price-to-earnings ratio is arguably low when compared to future earnings growth.

Over the next 5 years, EPS growth is set to expand at a compounded annual growth rate of 33.9%. That helps to explain why even with a P/E ratio of 70.6x, the PEG ratio of 0.86 is a good deal below 1, implying undervaluation.

It’s no surprise as a result that analysts remain very upbeat about the firm’s prospects, even more so than a straight calculation of the cash flows would forecast. A history of beating the Street has led to analysts revising their figures higher than perhaps the raw number may suggest are deserved.

The bottom line is MercadoLibre has become a household name in e-commerce in Latin America, where internet usage and online commerce are growing rapidly. In addition, the fintech initiative are set to expand the firm’s horizons.

The company’s brand and history of stellar execution, as well as a consistent investment in technology aimed at improving the quality of its solutions bodes well for investors. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.