MercadoLibre (MELI) Reports Record Revenue, Is The Undervalued Case Still Convincing?

MercadoLibre (MELI) just reported record second quarter revenue above US$10.1b. This is drawing fresh attention to the stock as investors weigh strong top line growth against lower net income and earnings per share.

See our latest analysis for MercadoLibre.

MercadoLibre shares now trade at US$1,844.58, with a 90 day share price return of 16.31% but a year to date share price decline of 6.54%. Over the past year, total shareholder return declined 22.90%, while the three year total shareholder return of 53.77% points to stronger longer term momentum.

If MercadoLibre's latest results have you thinking about where growth might show up next, it could be a good time to scan 21 top founder-led companies

Bulls point to MercadoLibre’s surging US$10.2b quarterly revenue and expanding ecosystem. Bears highlight softer earnings and margins as management leans into reinvestment. So do today’s valuation indicators back the growth story or the caution?

Most Popular Narrative: 74.8% Undervalued

MercadoLibre's most followed valuation narrative puts fair value at $7,313.48, well above the last close of $1,844.58, which creates a wide gap for investors to assess.

Three months ago I ran two models side by side, one taking GAAP free cash flow at face value, one normalizing for the credit book being investment rather than expense, and got a nearly $4,400-per-share gap in fair value depending entirely on which one you believed. I said the market's price, sitting roughly between the two, looked like appropriate uncertainty rather than miss-pricing.

Read the complete narrative. Read the complete narrative.

Want to know why MercadoLibre's fair value is above $7,000 a share in this framework? The key is how future cash flow growth, margins and reinvestment into the credit book are treated across a full forecast period, and how those assumptions translate into that intrinsic value estimate.

Result: Fair Value of $7,313.48 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, there are still real tripwires here. A weaker credit book or prolonged margin pressure could quickly challenge the current undervalued MercadoLibre narrative.

Find out about the key risks to this MercadoLibre narrative.

Another View: MercadoLibre looks expensive on earnings ratios

The DCF based narrative paints MercadoLibre as deeply undervalued, yet the P/E ratio tells a different story. The stock trades on a P/E of 50.2x, above the fair ratio of 40.1x and well ahead of both peer average at 23.2x and the global Multiline Retail industry at 19.9x. That kind of gap can mean investors are paying up for growth expectations that already sit in the price. The key question is whether that premium feels like a comfortable risk to you.

For a closer look at how that valuation gap stacks up across different peers and sectors, take a look at the See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With such a mixed picture around MercadoLibre right now, it makes sense to move quickly and check the data yourself before opinions harden. To weigh up both the potential rewards and the risks that investors are focused on, take a closer look at the 3 key rewards and 2 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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