MercadoLibre Outperforms Industry YTD: Buy, Sell or Hold the Stock?

Core Insights - MercadoLibre (MELI) shares have returned 40% year-to-date, outperforming the Zacks Retail-Wholesale sector and the Zacks Internet-Commerce industry's growth of 3.2% and 5% respectively [1] Group 1: Market Performance - The company is effectively tapping into the underpenetrated Latin American market, adapting to changing consumer buying and selling behaviors [2] - MELI's stock performance is driven by strong growth in both e-commerce and fintech sectors, with fintech revenues reaching $1.49 billion, accounting for 34.4% of total revenues and growing 43% year-over-year [7][9] Group 2: User Engagement and Growth - Mercado Pago, MELI's fintech arm, has seen a 31% year-over-year increase in monthly active users, reaching 64 million in the first quarter of 2025 [7] - The supermarket category has experienced a 65% year-over-year increase in items sold, making it MELI's fastest-growing category [10] Group 3: Logistics and Infrastructure - The company has strengthened its logistics network, with fulfillment penetration in Brazil surpassing 60% for the first time, which has helped reduce fulfillment costs year-over-year [8][9] Group 4: Financial Metrics and Valuation - The Zacks Consensus Estimate for 2025 earnings is $47.75 per share, indicating 26.69% year-over-year growth, while revenues are estimated at $27.35 billion, suggesting 31.66% year-over-year growth [11] - MELI is trading at a premium with a forward 12-month Price/Sales ratio of 3.95X compared to the industry's 1.98X, indicating an unattractive valuation for value investors [12] Group 5: Competitive Landscape - The company faces intense competition from well-funded international giants like Amazon, Walmart, and Alibaba, which could impact MELI's pricing power and long-term profitability [15][16] - Despite being a dominant force in Latin American e-commerce, the competitive threats from these companies are significant [19]