We came across a bullish thesis on MercadoLibre, Inc. (MELI) on Substack by Wolf of Harcourt Street. In this article, we will summarize the bulls’ thesis on MELI. MercadoLibre, Inc. (MELI)’s share was trading at $2065.94 as of March 19th. MELI’s trailing and forward P/E were 54.81 and 42.37 respectively according to Yahoo Finance.
A businesswoman using her mobile device to shop on a ecommerce platform.
MercadoLibre (MELI) has delivered an impressive 34% return over the past year, far outpacing the market’s 11% gain. Following this strong rally, the key question is whether MELI remains an attractive investment at its current valuation. A revised financial model incorporating MELI’s 2024 results provides insights into its fair value, projecting substantial upside. Using a ten-year discounted cash flow (DCF) analysis with a 10% discount rate and a conservative 2% terminal growth rate, the model forecasts a 16% compound annual revenue growth rate (CAGR) from 2024 to 2034. This estimate factors in a natural deceleration from MELI’s historic 56% revenue CAGR between 2018 and 2024 while recognizing the company’s continued market leadership in Latin America’s expanding e-commerce sector, which is expected to surpass $1 trillion by 2027.
MELI’s EBIT margin is projected to rise from 13% in 2025 to 20% by 2034, reflecting improved operating leverage and disciplined cost control. While MELI has aggressively invested in growth, its ability to scale and optimize costs has allowed for steady margin expansion. The company reported a 38% operating cash flow (OCF) margin in 2024, but this figure is inflated by its credit business, where cash flow movements can distort reported earnings. Adjusting for these distortions, MELI’s normalized OCF margin stands at 18%, projected to expand to 25% over the next decade. With a stable capital expenditure (CapEx) margin of 4%, MELI is well-positioned to sustain growth without excessive dilution, which has averaged just 0.5% annually in recent years.
At a fair value estimate of $2,749 per share, MELI offers a compelling 37% upside from its current price of $2,003 as of March 18, 2025. The long-term growth potential remains significant, as Latin America’s e-commerce penetration is still in its early stages, lagging behind the U.S. by nearly a decade. Additionally, financial inclusion in key markets like Mexico remains low, with under 50% of the population holding a bank account and less than 20% having credit cards. Mercado Pago, MELI’s fintech arm, is poised to disrupt the banking landscape, particularly in Brazil, where four incumbent banks dominate 59% of credit operations.
Despite the complexity of MELI’s business model, its execution track record is outstanding. Given its 46% gross margin today, a 20% EBIT margin over the next decade appears conservative, even as MELI continues reinvesting for growth. The market may be underestimating its ability to drive sustainable profitability, creating an attractive opportunity for long-term investors.
MercadoLibre, Inc. (MELI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 96 hedge fund portfolios held MELI at the end of the fourth quarter which was 87 in the previous quarter. While we acknowledge the risk and potential of MELI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MELI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.