3 Reasons Why Investors Should Stay Away From MELI Stock Right Now

Core Viewpoint - MercadoLibre (MELI) presents a concerning investment picture, with significant financial health issues despite reporting a 39.5% year-over-year revenue growth to $7.41 billion in the last quarter, suggesting potential investors should be cautious about this stock in 2026 [1]. Financial Performance - The Zacks Consensus Estimate for 2026 earnings has been revised downward by 1.54% over the past 30 days to $59.59 per share, indicating market pessimism regarding MELI's growth trajectory [2]. - MELI's revenue growth masks underlying profitability issues, with aggressive fintech expansion leading to compressed margins and increased credit losses [7][8]. Economic Environment - MELI's extensive exposure to Latin America subjects it to significant macroeconomic headwinds, including Argentina's inflation rate of 31.40% and a downward revision of Mexico's GDP growth projections to 1.5% for 2026, which could pressure e-commerce transaction volumes [4][5]. - Brazil's elevated interest rates to combat inflation are increasing funding costs for MELI's $11.02 billion credit portfolio, further compressing net interest margins and reducing consumer disposable income [5]. Profitability Challenges - The net interest margin after losses has compressed by 320 basis points to 21% in Q3 2025, highlighting difficulties in scaling consumer lending in volatile markets [9]. - Despite a projected total payment volume of $275.8 billion for 2025, the fintech operations are absorbing capital while delivering weaker profitability, with income from operations margin falling to 9.8% and net income margin declining to 5.7% [8][9]. Market Performance - MELI shares have declined by 11.7% in the past six months, underperforming both the Zacks Internet-Commerce industry and the Zacks Retail-Wholesale sector, which increased by 5.7% and 4.1% respectively [10]. - The stock's performance gap compared to peers like Nu Holdings and Amazon indicates critical execution weaknesses, as aggressive top-line growth fails to create shareholder value [10]. Valuation Concerns - MELI trades at a price-to-earnings ratio of 36.35X, significantly above the industry average of 24.26X and the broader sector average of 24.66X, making its valuation difficult to justify given ongoing margin compression [13]. - Without a clear pathway to margin expansion and sustainable profitability, the current premium valuation offers minimal safety for prospective investors [13]. Conclusion - The combination of regional economic instability, aggressive fintech expansion eroding profitability, and significant underperformance relative to peers makes MELI an unattractive investment proposition [16].