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MercadoLibre has fallen more than 20% from its peak six months ago.
Investors are worried about pressure from competitors.
The company still has a long runway of growth in front of it.
Heading into 2026, the stock market is coming off one of its best three-year runs in history, up roughly 75%.
The AI boom that kicked off with the Nov. 2022 launch of ChatGPT has led to some concerns about a bubble in AI, and the S&P 500 is now trading at a historically high price-to-earnings ratio. In such an environment, finding a growth stock isn't so easy. Ideally, investors will want to find a company that not only offers strong long-term growth potential but also trades at a reasonable valuation.
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One such stock that fits the bill is MercadoLibre (NASDAQ: MELI), the Latin American e-commerce leader, whose business covers verticals like fintech and logistics, and if you're looking to invest $2,000, then you have just enough to afford one share as the stock is trading at $1,998 a share as of Dec. 26. MercadoLibre has already made early investors rich. Keep reading to see why it still has a lot of growth potential.
Image source: MercadoLibre.
MercadoLibre has long been a top growth stock on the market. In fact, since its 2007 IPO, the stock is up 6,950%, which is based on its closing price from that day. However, based on its $18 IPO price, the stock has returned more than 100 times to IPO buyers. The chart below shows the performance.
MercadoLibre has delivered those kinds of results through consistently high revenue growth and a business model that has reinforced the company's competitive advantages as it's scaled up. Much like Amazon, the company has layered on complementary businesses such as MercadoPago, its fintech business, MercadoEnvios, its logistics business, and MercadoCredito, a financing business, to find success.
However, as you can see from the chart below, MercadoLibre is now down 23% from its peak in June as the stock has struggled.
Among the investor concerns that have weighed on the stock are increasing competition from the likes of Amazon, Temu, and Sea Holdings' Shopee. That's led to margin compression at MercadoLibre as it's had to offer shipping discounts in order to protect its market share.
In the third quarter, MercadoLibre's revenue jumped 39% to $7.4 billion, which marked its 27th consecutive quarter with revenue growth above 30%. However, its operating margin fell to 9.8% due to investments like lowering the free shipping threshold in Brazil, ramping up spending on the first-party e-commerce business, investing in social commerce, and expanding its credits business.
The margin and competitive concerns facing MercadoLibre are valid, but they aren't entirely new. Amazon has been operating in Brazil for years, as has Shopee, though both companies are making a renewed push in the market.
However, MercadoLibre's consistently strong revenue growth and advantages include its MELI+ membership program, which offers a package of benefits similar to Amazon Prime.
There's also enough room in the market for more than one company to be successful. Management said that e-commerce penetration rates are still in just the mid-teens in Latin America, and even lower in fintech, giving it a long runway of growth as it can take market share from traditional forms of retail and banking.
After the recent pullback, the stock has also gotten more affordable, trading at a price-to-earnings ratio of 49. MercadoLibre has bounced back from adversity before, and the business is strong enough to recover again. Wall Street, meanwhile, expects margins to expand in 2026 as products like its credit card in Brazil begin to mature.
Overall, taking advantage of the recent sell-off in MercadoLibre looks like a smart move as the Latin American superstar still has a long growth path ahead of it.
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Jeremy Bowman has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Sea Limited. The Motley Fool has a disclosure policy.
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