In Q3, billionaire Stan Druckenmiller bought about 4,620 shares of Latin American eCommerce giant MercadoLibre (NASDAQ:MELI) through his Duquesne Family Office. Often described as the Amazon of Latin America, MercadoLibre has been a significant growth business for many years.
With share prices having retreated below $2,000, however, MELI is well below the average price of $2,403 that Druckenmiller paid last quarter.
Why did Stan Druckenmiller buy MercadoLibre stock, and could the current pullback represent an attractive entry point for other investors hoping to mirror Druckenmiller’s trade on MELI
Druckenmiller’s Cyclical History With MercadoLibre
Although Druckenmiller has been buying up shares of MELI fairly consistently since Q2 of last year, he has gone through multiple buying and selling cycles in the past. MELI first caught Druckenmiller’s attention in mid-2018, when he bought a small position and promptly sold it profitably in the very next quarter. Similar cycles repeated in the following couple of years, though Druckenmiller exited MercadoLibre altogether in Q2 of 2021 and then didn’t buy back in until Q2 of 2024.
Since 2024, though, Druckenmiller has been on a consistent buying streak. Counting the shares bought in Q3, the Duquesne Family Office now holds over 58,000 shares valued at about $116 million. Though the shares bought in Q3 were purchased at a significantly higher price, Druckenmiller’s average cost basis for MELI stands at about $1,740.
What Does Druckenmiller See in MELI?
Given Stanley Druckenmiller’s macro-driven investing style, one of the first and most obvious appeals MercadoLibre may have for him is its exposure to the growth of Latin America’s economies. Although the region faces near-term pressures from trade disruption and a generally cooling global economy, Latin America appears to be making significant progress when it comes to economic modernization and the development of a stronger consumer economy.
As such, MercadoLibre’s Amazon-like business model and strong presence in the region could make it a prime beneficiary of Latin American growth. MercadoLibre is the largest business in Latin America by market cap, driving everything from eCommerce growth to digital payment infrastructure throughout South and Central America.
It’s also worth noting the exceptional performance MercadoLibre has already delivered as a business. From a 2020 total of just $7.1 billion, MercadoLibre has been able to expand its revenue base remarkably quickly to a current trailing 12-month total of $26.2 billion. Although net margins remain modest at 7.9 percent over the last 12 months, the business could also still have substantial room ahead for margin expansion and earnings growth.
These growth trends largely held in Q3, with revenue rising 39 percent year-over-year to a total of $7.4 billion. Net income of $421 million represented a margin of only 5.7 percent, well below the trailing 12-month average. However, heavy investments in Fintech could help to bolster margins in the long run. MercadoLibre has stated its goal of becoming the largest bank in Latin America, and Q3 saw a 29 percent jump in monthly average users of its Fintech services to 72 million.
Similarly, MercadoLibre saw substantial growth in its eCommerce customer base. Unique active buyers rose to 77 million, up from 61 million in the year-ago quarter. This growth corresponded to similarly large jumps in both total payment volume and the total number of items sold.
With both an exceptional business model and macro tailwinds behind it, MercadoLibre is expected to generate significant earnings growth over the next several years. 5-year EPS estimates suggest a compounding growth rate of over 30 percent annually. Considering that MercadoLibre has earned $40.97 per share over the last 12 reported months, this estimate could put per-share earnings somewhere in the vicinity of $164 by early in the next decade.
Is MercadoLibre Undervalued?
At 48.8 times earnings, MercadoLibre might not instantly stand out as an undervalued stock. However, shares of MELI have a significantly lower price-to-operating-cash-flow ratio of 15.3, potentially suggesting an attractive valuation on a cash flow basis. Much more importantly, however, the market position MercadoLibre has established for itself could allow it to grow steadily for many years.
This growth potential seems to account for the significant disparity between MELI’s current price and analyst expectations. The consensus price target for MercadoLibre is $2,815, which would imply an upside of almost 41 percent from the stock’s most recent price of $1,998. MercadoLibre also still has a strong buy rating from analysts, with 18 buys, three holds and no sells.
Why Druckenmiller Bought MercadoLibre
As an already-strong business with significant potential to benefit from macroeconomic improvements in its home region, MercadoLibre is, in many ways, a classic Druckenmiller pick. The investment philosophy at Duquesne has historically been driven by a combination of macro and value investing, and MercadoLibre could prove to be a winner on both fronts.
It’s also interesting to note that Druckenmiller’s approach to MELI may have changed slightly since he first invested in it. Early on, he was purchasing blocks of the stock and then selling them off fairly quickly. Since 2024, though, Druckenmiller hasn’t sold any shares of MercadoLibre. As such, it’s possible that he now sees the business as more of a long-term holding and less of a quick turnaround to buy when it looks undervalued and quickly resell.
This brings us to the question of whether the current pullback could be a good entry point for investors interested in MercadoLibre. Shares of MELI are down more than 20 percent in the last three months, though the 12-month return has still been quite positive at 14.6 percent. While lower net margins and ongoing trade issues present real risks, MercadoLibre’s impressive growth and plans to expand in higher-margin business segments such as Fintech could more than make up for them.
In the long run, the outlook for growth in Latin America is also likely favorable, even though the region is contending with near-term problems. For investors willing to buy and hold for long-term compounding returns, therefore, MercadoLibre could still be an attractive candidate to look at buying as a play on the continued development of Latin America’s economy.
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.