MercadoLibre: A Latin American Growth Engine or Overvalued Risk?

MercadoLibre (MELI) has emerged as the Amazon of Latin America, dominating e-commerce and fintech markets across 18 countries. Its Q1 2025 results—37% revenue growth, 67 million unique buyers, and a soaring fintech portfolio—highlight its potential. Yet, investors face a critical question: Is MELI's stock a buy now, or does its valuation and technical positioning signal overextension?

The Growth Case: Why MELI Could Keep Soaring

MercadoLibre's first-quarter performance underscores its strategic dominance in Latin America's digital economy. Commerce revenue hit $3.3 billion, while Mercado Pago's fintech division contributed $2.6 billion, fueled by a $58.3 billion TPV surge. Key markets like Argentina saw FX-neutral GMV jump 126% YoY, a testament to macroeconomic stabilization and brand loyalty.

In Brazil, Mexico, and Chile, MELI's logistics improvements—such as free shipping and 74% of orders arriving within 48 hours—are driving adoption of supermarket items, which grew 65% YoY. Meanwhile, the Mercado Play app, now on 70 million smart TVs, has expanded advertising inventory, boosting revenue by 26% YoY.

Why this matters: Latin America's e-commerce penetration remains under 15%, with 85% of retail spend still offline. MELI's integrated ecosystem—combining e-commerce, payments, and financial services—positions it to capture this shift. CFO Martín de los Santos calls it a “transition from traditional retail to digital,” a megatrend that could power decades of growth.

The Valuation Question: Is MELI Overpriced?

The stock's valuation metrics are eyebrow-raising. Its P/S ratio of 5.68 (vs. Amazon's 3.29) and P/E of 73.95 suggest investors are betting heavily on future growth. While free cash flow (TTM: $6.5 billion) supports this optimism, risks linger:

1. High NPLs: The 8.2% credit portfolio NPL ratio and Brazil's 111% YoY credit card portfolio growth could strain under economic shocks.
2. Competitor Risks: Local rivals like Linio (now part of Global Sources) and regional banks may encroach on MELI's fintech lead.
3. Institutional Flux: Funds like Baillie Gifford reduced stakes, hinting at profit-taking, while others like Capital International doubled down.

Technical Indicators: A Bullish Trend, But Overbought?

Technically, MELI's chart paints a bullish picture with the stock above all major moving averages:
- 20-Day EMA: $2,432.63 (vs. current price $2,606)
- 50-Day EMA: $2,257.18
- 200-Day EMA: $2,017.50

Yet, overbought signals raise caution:
- RSI (14-day): 76.27 (overbought >70)
- Stochastic Oscillator: 86.66 (deep overbought territory)

These metrics suggest a short-term pullback could test support near $2,559.16 (May's S1 pivot point). However, with ROC at 14.26% and strong momentum, bulls may see dips as buying opportunities.

The Bottom Line: Buy, But With Caution

MercadoLibre's long-term thesis is undeniable: it's the go-to platform for 64 million fintech users in a region hungry for digital financial inclusion. Its logistics and user engagement metrics signal scalability, and Wall Street's 100% “Buy” ratings reflect this.

But investors must choose their entry point:
- Long-term holders can view dips below $2,550 as buys, given its 43% YTD rally and 208% 5-year growth.
- Traders should avoid chasing the stock at current overbought levels; wait for a retest of $2,400-$2,500 support.

Final Verdict

MercadoLibre is a once-in-a-decade growth story, but its valuation and technicals demand patience. If you're a patient investor betting on Latin America's digital future, MELI is a buy. For traders, however, timing is key—let the overbought indicators cool before diving in.

Act now, but don't overpay: MELI's potential is unmatched, but so are the risks at these levels.