Parkev Tatevosian, CFA on $MELI (Nov 9, 2026)

The Mercado Libre management team is worrying investors thanks to their aggressive marketing and spending efforts. The company lowered the minimum amount for free shipping, which led to increased user engagement.

They also expanded their logistics services, adding warehouses and facilities to meet customer demands at a lower cost per customer when operating these facilities on a wider scale.

As an analyst, I always look for the results of these increasing investments to see if they justify expansion and doubling, which is what Mercado Libre seems to be doing.

The initial signs are positive. The company announced its quarterly earnings results on November 4, which showed a 41% year-on-year increase in net revenue . In addition, the number of monthly active users increased by 29%, and assets under management in the financial services sector increased by 67%.

On top of all that, they are achieving efficiency, as shipping costs in Brazil have fallen by 5% year-on-year against a macroeconomic backdrop of high inflation.

Therefore, they explain why they are continuing to move forward and invest heavily in this opportunity.

If you look at the bigger picture, with the advantages that online shopping offers customers and the growth in the Latin American economy as a whole, I can understand why the management team is optimistic about its long-term prospects and willing to spend to take advantage of this opportunity.

But what about the investor's point of view? Does this stock present a buying opportunity now, or should one wait until the company makes further progress on this expansion plan and demonstrates improved profit margins before returning to invest in the stock?

So, I wanted to take a look at these short-term developments, compare them to the company’s long-term performance, and reassess whether this is an attractive time to buy Mercado Libre stock after this significant drop.

Analysts on Wall Street have noticed increased investment by the Mercado Libre management team, and they are revising their earnings per share estimates for the company downward for the next few years.

Earlier this year, around January, Wall Street analysts were predicting roughly 34% growth for Mercado Libre over the next few years. This was revised downwards to a growth rate of 28% over the next few years .

Therefore, it is understandable that analysts who follow the company expect earnings per share not to be as strong as they once were.

But this is still an excellent growth rate for earnings per share of nearly 30%. These are excellent growth rates while simultaneously investing to take advantage of an available opportunity.

I think this is a great strategy when you have this kind of margin to work with, in order to invest in an excellent long-term opportunity, as a shareholder in a management team that has previously proven successful .

I support this type of step taken by the management team.

When I say they have shown improvement before, you can see that back in 2017 they achieved an operating profit margin of 25%. Then an investment cycle occurred and their operating profit margins fell to -10% in 2020.

After that, they recovered again and improved their operating profit margin to around 15 %. Since announcing the increased investment push , their operating profit margin has started to decline again, but it remains positive at 8.26 %.

So they have proven their success before. They have proven their ability to make an expansion push, then grow under that expansion, then find another area to invest in to create new areas of growth, and then prove that growth again and again throughout their life cycle to revitalize, expand and create bigger and better opportunities to seize.

However, let's look at the evaluation. Currently, Mercado Libre's stock is trading at its lowest valuation in years based on a forward price-to-earnings ratio of 27. It is the lowest level it has reached in several years according to this valuation metric, and if you compare this number to the estimated earnings per share growth, you can see that the estimated earnings per share growth is greater than the forward price-to-earnings ratio, which is something I always like to see as evidence of a very attractive valuation when the company's long-term earnings per share estimates are higher than the forward price-to-earnings ratio .

I believe this is an attractive valuation to consider for investing in the company. I have also updated my discounted cash flow valuation model for Mercado Libre with a few changes.

Therefore, over the next two years, I have lowered my free cash flow forecast for Mercado Libre. But starting in 2029, I have raised the company's free cash flow estimates as it begins to reap the benefits of these investments it is making in its growth opportunities.

I have also increased the market risk premium because the country and regions in which I operate have become more volatile than usual. The election results were not good news for the business community in Brazil.

Consequently, this will create a more volatile operating environment for both businesses and consumers. That's why I raised the risk assessment for that area. I also raised the risk-free rate of return because I expect interest rates in the region to rise.

All of this had a negative impact on the rating of "Mercado Libre".

However , at a price of $1512 per share, I believe this company is significantly undervalued, as I have calculated a fair value of $2213. So, to answer the question, do I think this is an opportunity to buy when the price is low?

I think so. I see that the risks are higher for Mercado Libre stock investors, but I believe the potential returns are worth the risk in this long-term investment .