A Once-in-a-Decade Opportunity: MercadoLibre After a Recent 10% Pullback

MercadoLibre (MELI), Latin America's leading e-commerce and fintech platform, has recently experienced a 10% pullback in its stock price. This correction, however, presents a unique opportunity for investors to buy into a company with immense long-term growth potential.

MercadoLibre's first-mover advantage and top-dog status in Latin American e-commerce have translated into a significant portion of the region's growing online market share. The company's early entry and robust infrastructure have created a strong barrier to entry for competitors. With the LatAm e-commerce market projected to grow by 50% over the next four to five years, MercadoLibre aims to capture more than 50% of this incremental growth.

The company's strategic investments in logistical infrastructure, such as the construction of five new fulfillment centers in Brazil and one in Mexico, further solidify its competitive position. These investments, weighing on short-term profitability, are expected to drive long-term cash flows and improve operational efficiency. According to YCharts, MercadoLibre's return on invested capital (ROIC) has been rising, reaching 18% in 2021, up from 15% in 2020.



Moreover, MercadoLibre's high ROIC and ability to generate outsize profits from invested capital contribute to its growth potential. Since 2020, the company has transitioned from a mere growth stock into a true compounder, with an 18% ROIC ranking in the top 20% of S&P 500 companies. This combination of a rising ROIC and its top-quintile ranking has historically proven to be an indicator of outperformance for stocks.

Despite its impressive track record, MercadoLibre appears to be trading at a once-in-a-decade valuation. The company currently trades with a price-to-sales (P/S) ratio of 5.3, less than half of its historical average. Additionally, its 1.5% earnings yield is at its highest consistent marks since 2017. As the company's monthly active buyer growth reaccelerated to 21% in the third quarter and revenue grew by 35%, MercadoLibre looks like a once-in-a-decade opportunity at today's price.

Investors who have the patience and resources to deal with ongoing volatility should consider adding MercadoLibre to their portfolios. The company's solid earnings, impressive growth prospects, and attractive valuation make it an appealing choice for long-term investors seeking a supercharged growth stock. As the Latin American e-commerce market continues to expand and MercadoLibre solidifies its position as the region's leading platform, shareholders can expect significant returns over the coming years.