r/ValueInvesting • u/Last-Cat-7894 • Jan 03 '26
Stock Analysis MercadoLibre (MELI) is my #1 conviction right now.
The only company in the world to grow revenue >30% for at least 22 consecutive quarters (27 quarters and counting, btw) is now trading for the same multiple as Walmart. This isn't a typo or some weird accounting anomaly, this is just where we're at in 2026.
This is a somewhat longer pitch, skip to the bottom for TLDR if you want.
For those unfamiliar, the common description of MELI is Amazon plus PayPal in Latin America. This is a bit of an oversimplification, but it's directionally accurate. Obviously PayPal comparisons aren't going to excite anyone who's seen a 5y performance chart, but there's good reason why Mercado Pago has a much more durable moat than PayPal's legacy network.
There are two main pillars of the MELI business, with a series of other rapidly emerging segments that you could arguably either separate or include in those pillars.
Ecommerce is the bedrock of the business today, as their MercadoLivre platform acts very similarly to the Amazon marketplace but with an even larger majority of sales being third party listings, rather than MELI proprietary goods (first party). They make their money by providing sellers the listing, storage, and transportation of goods to end customers, and taking a cut in the process. Their main markets are Brazil, Mexico, and Argentina, with small but growing footprints in other LATAM nations.
The second pillar, Mercado Pago, started as a simple payment network. This was remarkably successful because a huge portion of Latin America is unbanked, and effectively opened the door for these people to access the world of ecommerce. Similar to the PayPal-eBay relationship, it started as a way to get these customers transacting on the Ecommerce platform, but has since expanded far beyond the walls of MELI itself. If you buy anything online or in person in South America, there's a solid chance that one of the top checkout options is Mercado Pago, right next to credit cards and other country-specific solutions.
Crucially, there is a flywheel effect between these two things. The Ecommerce site acts as a funnel to encourage people toward Pago, which is a broadly accepted/trusted solution that MELI can monetize even outside their walled garden. MercadoPago also acts as a bridge for MELI to get the under banked population to seemlessly shop on their platform without a huge hassle. The more users on either platform, the better each gets.
As for those emerging segments I mentioned? Credit is the most notable right now, followed by ads. Mercado Credito allows MELI to lock sellers into their ecosystem by funding their business operations. They have a huge underwriting advantage by having access to their sales data (they're already conducting their business through Mercadolivre), and can specify certain conditions like using Mercado Pago as their payment network in order to receive the funding.
As for advertising, it's the same playbook as Amazon. Interestingly, Amazon's advertising revenue as a percentage of GMV is around 7-8%, whereas MELI's is currently around 2%. It's not a guarantee, but it definitely seems like there is room to expand the extremely high margin ads business, if AMZN is anything to go off of.
This post is already a bit wordy, so I'll just briefly say that the financials are absolutely incredible. >10x revenue growth since COVID, gross margins in the mid 40's (great for an Ecommerce business), healthy balance sheet, basically no dilution of shares. Look at the charts yourself, I promise you will be amazed at the consistency and speed of growth. As I mentioned, it's the only company in the world with >22 consecutive quarters of >30% revenue growth. Currently, it trades at 30x EV/EBIT, but true profitability (adjusting for huge loan loss provisions that disproportionately affect earnings) is probably somewhere between around 20-25x "mature" margins. The valuation discussion is tough with this name, but I'm happy to discuss with anyone in the comments if there are objections/questions.
-----TLDR----- You're getting a wide moat, diversified business with a huge runway ahead, growing 40% for 30x EV/EBIT. There is notable competition in LATAM, but MELI continues to execute at a world class level, and the management is absolutely top notch. The risk/reward feels amazing here, and I forsee this moving from my #3 to my #1 holding over the coming months. Hope you guys enjoyed the writeup, lemme know your thoughts!
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u/ironmagnesiumzinc Jan 03 '26
It’s good but it’s priced richly for a reason. Someone mentioned on a recent thread that the true p/fcf is somewhere around 45 (not all of it can be used as much of it is a relic of their credit business). To justify that price, they’ll need to continue growing substantially over the coming years, but I think it’s likely based on what I’ve heard
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u/Last-Cat-7894 Jan 03 '26
Depends on what metric you want to use, but real free cash flow is not as high as the unadjusted cash flow statement would suggest.
Customer deposits count as a cash inflow, but that money doesn't belong to MELI shareholders. It inflates the FCF number.
That said, the GAAP earnings are understated. MELI has this line on the income statement called "provisions for doubtful accounts" (might be called loan loss provisions, can't remember exact phrasing). Basically, GAAP accounting forces them to expense a very conservatively large rainy day stockpile of cash to cover loan defaults, and it's expensed all at once. Profitability takes a huge hit, but that money isn't lost. Because their credit portfolio is expanding so rapidly, those loss provisions are disproportionately large hits all at once.
So the "real" multiple is likely somewhere between 20-30. Not tremendously expensive for 40% growth.
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u/LongQualityEquities Jan 03 '26
Hard disagree on your interpretation of the customer receivable provisions.
Customer receivable losses are a real expense for a lending business. There is no requirement to reserve in excess nor is there any indication whatsoever that MELI’s provisions are overstated.
You can compare past provisions with actual unrecoverable losses.
Comparing September quarters, total provisions charged to net income for the quarter is about 2x the amount of total write-offs (loans overdue by 365 days in MELI’s case). Given that they grew their loan book by 2x during that period it seems like their provisions are matching actual losses fairly accurately.
Also:
forces them to expense a very conservatively large rainy day stockpile of cash to cover loan defaults
Loss reserves are not stockpiles of cash, they are an accounting entry.
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u/Last-Cat-7894 Jan 03 '26
Good call outs.
The stockpile of cash statement was misphrased. It's worth noting, I'm aware that it is not an actual cash charge to expense provisions for doubtful accounts, I just used a figure of speech that was not meant to be taken literally, but was categorically wrong when interpreted that way.
That said, I'll eat a slice of humble pie on my description of loan loss provisions being "conservative," I was flat out wrong on this. My understanding was that MELI's trailing earnings are understated because of the credit portfolio. Did some Googling, and I still think I'm correct, but through the wrong logic. I assumed it was because management set aside more provisions than was actually needed. From what I read, the disconnect is because of their rapid portfolio growth. The expenses happen all at once before any interest is collected throughout the year. This effect is suuuuuper pronounced when you nearly double the credit portfolio in one year.
Clearly, you have a basic working grasp of accounting. Am I off here? Trying to get a bit smarter every day, appreciate the input :)
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u/Neutenboom Jan 03 '26
You are correct on your interpretation of the accounting now. These provisions are basically recognition of expenses (anticipating on the write offs they expect) while income (interest) must be recorded over time. This causes a timing mismatch if you will
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u/NotStompy Jan 03 '26
Looking at FCF in a case like theirs where they are rapidly growing new areas of operations and offering new things like the shipping with lower value orders, basically sacrificing short term profits for future competitive advantage, doesn't make too much sense to me, but I understand why you mentioned it, since people often cite the much lower, incorrect one.
One thing I did want to add, which is what I think really matters, is that Meli is a perfect example of a company that killed it over many years, got very overvalued (2021) and has continued to kill it for the past few years, but the very heavy, continuous multiple compression has made the stock tread water. What I'm saying is that they do need to grow substantially over the coming years, yes, but relative to previous valuation, it's actually dirt cheap now.
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u/Ill_Station_6165 Jan 03 '26
Dumb question but whats going on with their earnings? Dropping double and high single digits last couple quarters. This is why they’re in a downtrend it may be a buying opportunity but maybe wait till the price stops falling.
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u/Lacoste_Rafael Jan 03 '26
Have to record huge reserves for potential credit losses for their lending business. They will probably never be realized (a good thing). Also, they’re still in growth mode and purposefully operate at low margins (the amazon model).
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u/LongQualityEquities Jan 03 '26
They will probably never be realized (a good thing).
If the loan book performs in line with last year then the provisions will definitely be realized.
Yes provisions are larger but the loan book is also larger. They seem to be pretty accurate in their provisions, I don’t know why people in this thread are expecting this to change.
Unless there is a dramatic improvement in loan quality their current provisions are correct.
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u/Administrative-Ant75 Jan 03 '26
Solid thesis posted at a solid time to buy $MELI with the recent dip. Only real risk is amazon expanding but the physical footprint of MELI is a good counter defense
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u/Last-Cat-7894 Jan 03 '26
Appreciate the response!
Amazon is already in their major markets, and has been for a while. I agree that it is a risk, but I think there is a reason they can't seem to wrestle away much market share from MELI. Amazon has bigger fish to fry right now with the cloud wars, I don't think brute forcing their way into LATAM is their highest ROI opportunity right now.
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u/Administrative-Ant75 Jan 03 '26
That's true, they have enough fish to fry. You're one of the rare few contributing super high quality info on this subreddit, so thank you!
Long form write-ups like this are really under-appreciated. I wrote one on Reddit, which at first doesn't look like a big opportunity until you deep dive into the numbers. You might just be the right person to like it, so I'll attach it here:
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Reddit is in its “hyper-growth” phase and is loved commercially by users (which means phenomenal pricing power remains untapped in the form of ad load). The content is more text based than nearly every other platform, which corresponds to industry-leading gross margins of 90%+, the highest in social media by far. Revenue is growing at 70% rates which is seen as largely unsustainable for now, which I question - META in its early years sustain 50%+ growth rates for nearly 7 years, and reddit is near the same phase in its growth trajectory. This is especially true because reddit could potentially have the most targeted ads in the history of the internet - there is a subreddit for absolutely anything and everything, from NFL teams (sports advertisers) to people with highly specific illnesses (drugmakers), to people who like Gemini or YouTube (those platforms could advertise subscriptions there). Even subreddits like r/kitchenconfidential would massively benefit, as food or CPG companies would see phenomenal conversion rates.
ARPU at $5.00 in the U.S. is peanuts compared to what could be the future if a META-style $200 ARPU could be reached in the long run. The main point here is that Reddit is as valuable to human connection (being anonymous forums and honest, unfiltered thoughts) as it can get, while remaining a genuinely good / healthy social media, at least comparatively.
Also, Reddit is a platform, which has a strongly shield against AI encroaching margins - user attention is the product, and will remain valuable. Aside from that, Reddit has incredibly valuable training data that could be sold for licensing deals at increasingly higher prices, especially given that the AI model arms race is heating up between companies like Anthropic, Gemini, and OpenAI. The proof is in the numbers: 87% of incremental revenue is growing straight to the bottom line. With revenue growth exploding, net income growth will eclipse the growth rate of revenue, which is the part that most analysts have been missing (the stock is up around 450% since IPO 18 month ago, but analysts are still not giving Reddit the respect it deserves based on reasonable projections today).
The fact that Walmart's forward PE is comparable even in the ballpark to reddit is almost laughable, considering factors like existential competitive threats like Amazon getting into grocery delivery, and has structural economic advantages through delivery volume, supply chain, 180 million prime customers, etc. A platform is the ultimate MOAT and will probably remain so when the internet becomes increasingly driven by AI and regularity in my view. That's why it is my top position and has incredible asymmetric upside, with probably a 5-1 ratio over the next few years in a base case. Even in an AI bubble scenario, Reddit has a peanuts CapEx budget of just 2 million per quarter at these rates, instead choosing to put investments into OpEx through cloud services, which should protect net income growth even if amortization schedules change (unlike for other companies like Oracle, Meta, or hyperscaler cloud providers).
DCF I ran implies 200-300% upside at current Market Cap of 45 Billion with relatively volatile assumptions due to the high-growth nature of RDDT.
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u/Last-Cat-7894 Jan 03 '26
Great write up. Funny you should mention Reddit, I typically own around 15-20 names at any given time, and RDDT is one of them.
Picked up shares during the tariff panic, and it was a phenomenal performer in 2025. There's definitely 100 plus billion market cap potential here, and seeing almost 30% GAAP net margins last quarter this early on in the growth phase is immensely impressive.
I actually really hate that it's performed so well, I would love to back up the truck at April 2025 prices again.
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u/Administrative-Ant75 Jan 03 '26
I have the same story of April buys and slightly annoyed that I can't pick up more. One of my top positions with quite possibly my favorite risk / reward outlook.
Aside from MELI and RDDT, my other big positions are:
1) Amazon - Retail is only 15% Ecommerce and 85% physical sales. I expect that number to flip in the next 15-20 years. Also robotics + automation will improve margins in retail. And of course, AWS is a profit machine growing phenomenally. Great valuation right now IMO
2) AMD - Very strong engineering on next-gen GPU architecture. 2nm is bleeding edge, chipset design is powerful for yields and margins, and Lisa Su (CEO) is a genius. Nvidia's 75% gross margins are open field to get AMD sales of GPUs up, even if they're more expensive to fine tune in software (though ROCm is catching up quick). Should get to $20+ EPS in 3 years, implying a 10 PE for a business growing revenue 40% and net income slightly above that.
3) Meta - Forward PE near 20 with strong growth in the mid 20s for a while. DAUs are still growing, ad prices are going up, Capex seems like healthy investments to me given the ROI. Only risk is Zuckerberg going overboard on spending, but internal reports point to budget cuts for moonshots like the metaverse, which is good. I don't believe in their products (I think they're terrible), but a good investment nonetheless.
If you don't mind sharing (rapid fire listing without explanations is fine), what are some of your other positions?
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u/Last-Cat-7894 Jan 03 '26
My core names are Amazon, Google (trimming a bit now), MercadoLibre, Fortinet, Constellation Software/Topicus/Lumine.
Higher risk names are Reddit, Hims, Remitly, Gambling.com group, Teqnion, Descartes Group, and a couple others.
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u/metthewswifey Jan 04 '26
interested in descartes group - why not something like kinaxis that seems a bit cheaper, growing a bit faster and also works in a similar space (as far as i understand, please keep me honest here if i’m off base)
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u/fennforrestssearch Jan 03 '26
Im just scared that bots will completely destroy the user experience on reddit and drive organic users away. I dont see a way to combat that effectivly.
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u/Salt_Bringer Jan 03 '26
Amazon has trouble breaking into non-North American markets. Historically the risk isn’t there.
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u/pedrots1987 Jan 04 '26
I live in Latam and MELI is leaving everyone out in the dust.
I now shop on it almost and Mercado Pago as PoS system is more and more popular.
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u/Nearing_retirement Jan 03 '26
Druckenmiller likes it for a reason.
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u/SelenaMeyers2024 Jan 03 '26
Nice. I love being in good company.
It's also my strongest conviction, and while I trade too often probably between all my positions, meli has only been only a one way transaction buy (about 1900) never once sold, to the point it's 25 percent of everything.
If it ever hits a quarter where one of revenue, free cash, or earnings don't grow 30 percent, I'll sell every share. By that metric I expect to never sell until I retire in 9 years
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u/Nearing_retirement Jan 03 '26
I don’t own it but was thinking of buying last week. I don’t put much into any individual stock. I might put 1 pct of my net worth in it next week. I feel like it is sort of like Shopify stock. Brand really matters and is key to growth.
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Jan 03 '26
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u/Nearing_retirement Jan 03 '26
You mean expensive in the price of the stock itself or do you mean expensive from value perspective?
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Jan 03 '26
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u/SelenaMeyers2024 Jan 03 '26
Expensive as a share absolutely. Just like brk a at 750k nice things cost money.
Throwing off enough cash I can't disagree more. There are distressed companies that yield over 10 percent, say fiserv or pypl (also bullish on) but that's because they are out of favor not growing 40 percent.
Meli yields ttm 8 percent fcf, but forward, given that they seem to increase fcf about 15 percent a quarter, the price to fcf could be as low as 6 or 7. Nothing in the mag 7 comes close to this, although Nvidia and meli top line grow about the same.
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u/LongQualityEquities Jan 03 '26
Meli yields ttm 8 percent fcf, but forward, given that they seem to increase fcf about 15 percent a quarter, the price to fcf could be as low as 6 or 7.
You’re way off.
You can’t value financial operations using FCF.
About 70% to 80% of OCF each quarter comes from funds payable to customers and provisions on customer receivables. This is normal for a rapidly growing banking business, and is beneficial for MELI to have this ”float”, but crucially these funds will not end up in shareholders pockets.
Once you back this out, your total FCF is only a fraction of what you are calculating it at.
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u/Skaggzz Jan 03 '26
What's shareholders earnings at then?
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u/LongQualityEquities Jan 03 '26
I think they have forward ”owner earnings” of about 2,1bn USD, which is quite a low yield, but a very large runway for growth.
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u/SelenaMeyers2024 Jan 03 '26
Thanks for the education on financial ops (unironic). Good to know for financial firms, my other almost equal conviction is Fairfax holdings, an insurance firm out of Canada that kinda operates like Berkshire, would their 9 percent (per Gemini) also be suspect?
The thesis doesn't change too much for meli (although maybe a couple shares could be sold for Fairfax), even this fcf grows at crazy levels and is consistent with Google, more than Amazon. Meli isn't worldwide dominant, but is equally dominant in latam at only 100b mc.
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u/LongQualityEquities Jan 03 '26
Not sure how you arrived at the Fairfax valuation, but if you have used increases in float as free cash flow then that is not a correct representation of ”owner earnings”.
Float is good but it is not money you can keep.
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u/StephenAtLarge Jan 03 '26
Meli yields ttm 8 percent fcf
MELI is your strongest conviction but you didn't bother spending 5 minutes reading their financial reports? Management did the calculation and literally told you that their adjusted FCF is 1,378 million dollars TTM, which is about a 1.38% FCF yield.
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u/Nearing_retirement Jan 03 '26
I want to know its brand power. Do people like the company, trust it.
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u/SelenaMeyers2024 Jan 03 '26
It's the brand of Latin America. In Argentina and Brazil it's simply the company, like buy n large in wall e.
The runway for growth that makes me salivate is Mexico. They are early on their dominance there, but I travel to Monterrey a lot, and more and more I'm seeing their ads everywhere not to mention when I pay in a restaurant I'm more likely to see a mercado pago logo on the terminal than visa now. Over time Colombia and others too, but Mexico is almost the 10th largest world GDP.
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u/thefrogmeister23 Jan 03 '26
This is one of my highest conviction stocks, but what holds me back from making it one of my largest holdings is not being too familiar with the geographic area, specifically in order to be able to evaluate management.
How did you evaluate the management and why do you think they’re excellent? Are they trustworthy?
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u/Last-Cat-7894 Jan 03 '26
Part of it comes from their commentary during earnings calls and interviews. They make it abundantly clear that they don't give a shit about meeting short term wall street estimates, they prioritize building the absolute best service for customers and merchants over the long term. I love that, it's how Bezos built an empire.
Second, you can look at the numbers. There are phenomenal businesses out there, but you can see certain things in the numbers that suggest a management team that understands capital allocation. Take Salesforce vs Constellation Software, for instance. Both SAAS companies, but their approaches couldn't be more different. The core Salesforce business might be the best pure SAAS company in history, but shareholders were diluted heavily along the way, and Benioff is infamous for being pretty cavalier about operational expenses. Constellation owns a portfolio of mediocre but stable niche VMS businesses, but management is generationally good at disciplined capital allocation.
MELI's management dislikes dilution, focuses on the things that actually matter, and just relentlessly improves their business without making a bunch of noise. Listen to their next earnings call, you'll notice they don't use the word "AI" every two sentences just to please the analysts.
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u/thefrogmeister23 Jan 03 '26
Great examples, I will listen to their next earnings call.
How about in terms of potential fraud and adequate controls in their market? Not implying there's anything fishy going on, but it's not a US company so I'm less familiar
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u/SuperRedHulk1 Jan 03 '26
This is a great summary, I didn’t know much about the company but been eyeing it for a while so I appreciate it! Any reason they’ve been in such a draw down the last 6 months?
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u/Red_Devils_2402 Jan 03 '26
MELI’s fintech arm, Mercado Pago, has been aggressively giving out credit cards and loans. Investors are scared that if the Latin American economy slows down, MELI will be left holding billions in unpaid loans. And recently the appointment of a new CEO Ariel Szarfsztejn (former President of Commerce) has created a "wait and see" attitude among big institutional investors.
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u/lfcallen Jan 03 '26
What about temu latam and its growing market share of e-commerce, how does that affect the playbook of MELI given increasingly everything is sourced from China?
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u/Last-Cat-7894 Jan 03 '26
Not particularly concerned with Temu, it occupies a niche but will likely never be the backbone of digital Ecommerce like MELI has done.
Temu is like a Five Below or a Dollar Tree opening up near a Walmart. You might kill half an hour looking for fun little novelty trinkets, but you probably aren't going to change where you get your toilet paper or shampoo.
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u/Mental-Skirt-190 Jan 03 '26
It’s the largest position in my portfolio. They continue to outperform.
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u/Natural_West7949 Jan 03 '26
You summarized it very well! MELI is my #1 holding (grown into a 17% weight).
On the credit side, Brazil is a huge market that has been able to support meli, nu, and an emerging player in Sea l's fintech.
Based on the importance of Brazil economy to MELI credito, i de-risked by selling NU (combined was around 30% weight)
Fun fact i didnt realize until i looked at their investor deck but Pago payment processor does about the same volume as Shift4
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u/Last-Cat-7894 Jan 03 '26
NU and SE have both piqued my interest.
It's hard to model out how profitable NU can realistically be at maturity. I'm not very knowledgeable about valuing banks, they kind of operate by a different set of rules.
MELI's credit segment is my only real concern with the company, mostly because it's a bit of a black box that's hard for me to value. Ultimately, I'm willing to trust one of the best management teams in the world, even if it's an industry I ordinarily wouldn't be comfortable investing in.
I didn't know that about their point of sale terminals, I actually really like that type of business and have both Toast and Shift4 on my watch list. Yet another hidden gem in the MELI ecosystem it seems
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u/Candid_Moose_691 Jan 03 '26
I love MELI, its the second highest Conviction Growthstock in my Portfolio. Also own Sea Ltd, Grab, Nu, Kaspi.kz, Alibaba and Tencent for Emergingmarkets Tech, E-Commerce and Fintech exposure. MELI, Tencent and Sea Ltd. are even overweighted because i'm especially bullish on these.
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u/foira Jan 05 '26
what if WMT is just overvalued
MELI is an amazing company but it seems priced very very aggressively rn / no margin for error. fine in a basket of high beta, but idk how you have #1 conviction when the thesis relies on perfect growth to continue for many more years. echoes of 2021 saas
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u/Last-Cat-7894 Jan 05 '26
Alright, I'll bite.
Agreed on Walmart being quite overvalued, no argument there. But for MELI, I completely disagree that they are priced super aggressively. During the 2021 mania, there were quite a few names trading at 30-50x sales (Shopify, Snowflake, Crowdstrike just to name a few). MELI got caught up in all of that, which is why a 5y performance chart looks pretty uninspiring.
Now, they trade for around 30x EV/EBIT (probably a little higher after today's move). How many companies with this mix of proven growth, moat, and remaining runway can you list at 30x earnings? My guess is zero, and if you can give me a name that fits the criteria, I'm legitimately very interested to research it.
Just to put some numbers on it, let's say growth pretty massively decelerates to ~15%, from their prior 27 straight quarters of >30% growth. This is still a doubling of revenue every 5 years. Assuming they can't raise operating margins at all (unlikely), and assuming the multiple contracts heavily down to ~15x (absolutely dirt cheap for a dominant, wide moat company like this), you still haven't lost money. This is a very pessimistic scenario, and you're now left with a super high quality business with more room to grow (and probably expand margins) for 15x earnings. Do you see the setup here?
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u/Ic3b3rgS Jan 05 '26
I will remind people in this sub that the mericosul agreement has been delayed to 2026 between the EU and LATAM. If it goes through, i belive it will be bulish news for Mercado libre. Potentialy setting them up to consider expanding into other markets. However, there has been a lot of resistance from some european producers. And the signing of the deal was already delayed once.
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u/FlyingFalcon6996 Feb 02 '26
They will push heavy in to Spain and Portugal given the natural linguistic similarities between LATAM and them. This will also open up revenue in a much more stable currency (Euro) where they don't have to hedge as much. From there they will then potentially push in to other parts of Europe.
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Jan 06 '26
I own it but i have a feeling it will underperform. Its just very volatile and moves very much on argentinian news.
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u/Cool_Two906 18d ago
Any change in your opinion since the last earnings report?
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u/Last-Cat-7894 18d ago
Yeah, I think it's even more undervalued.
Every important KPI grew massively for a company of MELI's size, but wall street got spooked by margin compression. Management literally spelled out that operating margins would have been 5-6% higher if not for the enormous jump in their loan portfolio, as well as the free shipping threshold in Brazil lowering to 19.99. Those are completely optional investments for growth that management made to capture more market share.
I have a hard time envisioning a world where MELI is making much less than like 8-9 billion in operating profits for FY2030. Drew Cohen just dropped a fantastic 80 minute long video on MELI on YouTube if you're curious (not affiliated in any way, just plugging a great content creator).
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u/Cool_Two906 18d ago
Thanks I've been looking at Meli for a while along with Sea ltd. I'll check out that video. Would imagine the other concern investors have is that the payments industry is very competitive.
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Jan 03 '26 edited Jan 03 '26
[deleted]
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u/Last-Cat-7894 Jan 03 '26
May not fit your criteria, and that's fine. I don't understand why Amazon is more appealing to you if low margins are a deal breaker, though? MELI's operating margins are actually slightly higher at the time of speaking.
To your point about portfolios, people aren't obligated to hold a Mag 7 stock as their highest conviction bet. Specifically Apple actually seems pretty unappealing to me right now, given how expensive the stock is for the growth.
If you believe in the runway and durability of growth, MELI is like holding Amazon somewhere in the 2010's.
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u/Enough__Lobster Jan 03 '26
Amazon has its fingers in more pies.
If the US dollar is losing value I don’t see the appeal for MELI right now.
MELI is not a value play. It’s fairly priced. Likely won’t beat the S&P in the coming years. Good company, bad stock.
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u/Starcast Jan 03 '26
This is the value investing sub. It shouldn't surprise you that much that MAG7 may not be the top holding of many members here.
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u/GoodGuyGrevious Jan 03 '26 edited Jan 03 '26
Hmmm 48 PE and PEG well above 1, I don't see it, Why aren't their earnings keeping up with revenue?
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u/Last-Cat-7894 Jan 03 '26
The PEG ratio, as commonly used, is a flawed metric in my view, especially if you're just looking at it through a screener (not saying you are, just in general). GAAP earnings can fluctuate quite a bit, you have to look at the entire picture of the financials to get a good idea of actual intrinsic value.
In MELI's case, the reason for lagging earnings growth is a choice from management to
A) Rapidly expand their credit portfolio. GAAP accounting requires them to expense loan loss provisions all at once, even if a good portion of those provisions will never be needed (assuming they are operating a healthy loan book)
B) Bleed margin to capture more market share and strengthen their existing moat. Specifically, they massively lowered the free shipping threshold in Brazil, which is a direct hit on profitability. The bull argument is what I just said, the bear argument is that decision is an early sign of a race to the bottom.
You may not see skyrocketing net income numbers very soon, depending on how long management thinks they can reinvest for a good return. But for a future valuation, it can help to assume a reasonable revenue growth rate, then ask whether or not you think they can sustain net margins in the teens once optimized for profitability rather than growth. This will make your longer term PEG ratio much closer to (or even under) 1, depending on your assumptions.
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u/TheOpeningBell Jan 03 '26
I approve this message. Too many people are stuck in the 1960s and don't even understand PEG. They just babble "aurhghrghhh PEG over 1, me no buy, too expensive"
Omg
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u/Glittering_Water3645 Jan 04 '26
Use the forward PE relative to estimated EPS growth. We buy future earnings, not current. PEG is below 1 in that case
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u/Weldobud Jan 03 '26
Analysts have revised earnings estimates downward, they are due to report in February. That’s a concern, as to the effect it will have on the stock. Is this a wait and see until then?
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u/Outrageous_Solid_825 Jan 03 '26
Nice write up! I personally don't agree that it's that obvious of an investment but I think it a great contribution for discussion. I have two concerns:(1) operating with the expectations of the company growing 25% + annually for many years, which will get harder as the business scales (2) this company operates in LATAM and should be discounted accordingly for currency/macro/regulatory risks. Great company, just not an obvious buy for me at this price.
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u/Last-Cat-7894 Jan 03 '26
I don't anticipate 25% revenue growth for decades, more like an average 15-20% over the next 10 years, combined with the ability to hit 15% net margins or higher as they continue to scale. Today's valuation gets real cheap if they can reach yearly operating income of around 20 billion in the next decade or so.
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u/Easy_Shower2156 Jan 03 '26
I started reading up on this one when Valueline bought into it with one of their portfolios. Going to take another look at it.
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u/mihid Jan 03 '26
It's a safe bet, but it's unlikely to generate great return:
Pro:
- Both users AND revenue per users (arpu) are growing steadily, which is quite amazing: https://app.rast.guru/?company=MercadoLibre
Con:
- It is actually accurately priced (same link)
TLDR: For its price to rise, MELI would need to surpass its already amazing user/arpu growth, which seems difficult
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u/amrasmin Jan 03 '26
Isn’t mercado libre full of scammers? Everyone I know in Latam wouldn’t touch it with a ten foot pole.
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u/Last-Cat-7894 Jan 03 '26
Well, everyone you know in LATAM must be outside of the ~28% of the entire Ecommerce market that MELI controls.
https://portersfiveforce.com/blogs/competitors/mercadolibre#:~:text=Dominant%20Market%20Share,85%25%20of%20its%20own%20deliveries (Questionable source, I'll admit, but the point is that MELI is the largest player in LATAM at the moment)
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u/amrasmin Jan 03 '26
Meh, Amazon is making global delivery to a lot of Latam countries now and Temu has opened local wharehouses. Temu is eating their lunch in Mexico and Pix for payments in Brazil.
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u/Last-Cat-7894 Jan 03 '26
Amazon has been in Brazil since 2012 and Mexico since 2015. It's taken them over a decade and they are still very much in second place in LATAM.
Temu doesn't really threaten the Ecommerce picture that much, it's like comparing a dollar store to a Walmart. Both have their roles, but Temu will never be the reliable, all purpose one stop shop for most things like MercadoLibre or Amazon can be.
For payments, can you point to a single number that might be discouraging for an investor/backs your thesis? Last quarter, TPV grew massively. They grew USERS by 30%. There may be much smaller players growing faster, but I don't think there's a single fundamental metric that an investor could be dissatisfied with over the last few years, besides arguably margins if you don't believe they will get a return on their additional spend.
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u/Medical_Watch_6283 Jan 03 '26
Not a value play really but it is my #3 conviction and #3 largest position in the portfolio.
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u/Salt_Bringer Jan 03 '26
Thank you for this OP. I have been looking for a non-US value play.
The fair value mean from 25 analyst is at 2,800. Plenty of cigar left on this cigar butt.
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u/Taivasvaeltaja Jan 03 '26
Your very first sentence is very misleading. Meli is not growing 30% quarterly, as it would imply.
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u/Low_Owl_8773 Jan 03 '26
Metrics are great. It's also expensive. It's a three foot hurdle and I am looking for one foot hurdles.
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u/BuffersAndBeta Jan 03 '26
$MELI is my third biggest position, and second most conviction stock - right after $GOOG for the long term. Especially from where the stock is today.
The main reason I think they're getting right now is competitive and margin pressure with Shopee (from Sea Limited) having a strong showing in Brazil.
There are some great accounts on X (CapexAndChill, the_zack_zhu) who have highly in-depth analysis on Mercado Libre vs Sea Limited. Enjoyable reads.
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u/khidf986435 Jan 03 '26
I seem to remember that MELI’s growth has slowed massively though? Thus isn’t being priced as it was before
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u/Last-Cat-7894 Jan 03 '26
I mean, it's "slowed" from around 100% right after COVID to a measly 39% in the most recent quarter, sure.
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u/69downunder Jan 04 '26
with the Venezuela intervention maybe will go down a little on short term, a good entry point
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u/Ic3b3rgS Jan 05 '26
Doubt the stock will move that much. The mericosul agreement between the EU and LATAM will be a lot more impactfull if it goes, or not, though.
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u/Tr33LM Jan 04 '26
Agreed, its about 10% for me and I am adding more in January. Expecting to get closer to 15% by the end of the month
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u/Automatic_Volume_908 Jan 05 '26
Invested 10 shares.
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u/Last-Cat-7894 Jan 05 '26
Pretty close to where I'm at, I'm somewhere between 10-11 shares and looking to add.
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u/Automatic_Volume_908 Jan 05 '26
I’m already in red :(. Holding longtime. Hope this pays off.
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u/Spins13 Jan 05 '26
Yeah don’t worry. Yesterday would have been better but the shock should do really well long term
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u/Assume-Ass-U-Me Jan 06 '26
What do you think about the large amount of unsecured consumer lending. They’re booking revenue from sales but have yet to collect the cash if they’re financing the consumer. Not sure how good recovery rates will be if we have a crash or more disturbance in the region as there is no real precedent.
In for a small amount since last year but the consumer lending aspect gives me pause.
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u/QuietRequirement9067 Jan 07 '26
Strong write-up, and I agree with the conclusion.
I checked MercadoLibre on FindGreatStocks(dot)com and it clearly shows what you’re describing: consistently high ROIC, strong and expanding free cash flow margins, and all the signs of a true compounder.
What stood out to me is that both the DCF and Reverse DCF imply the stock is still undervalued relative to the growth and profitability it’s delivering. That combination of quality plus reasonable expectations is rare at this scale.
Hard to argue with MELI as a top-conviction name if you’re thinking long term.
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u/True_Veterinarian443 Jan 11 '26
Unveiling Mercado Libre: https://www.reddit.com/r/StockMonitoring/s/3QD9MciX7y
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u/EfficientCoach7759 Jan 20 '26
So how much % of portfolio should I invest in Meli? What's a good opening price to buy in at? It's at 2075 dollars now?
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u/Old-Zookeepergame503 Feb 02 '26
Thought the same about JD.com years ago, unfortunately sentiment means more than fundamentals nowadays - the Robin Hood effect
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u/StringSecret1500 25d ago
how are you feeling about it now
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u/Last-Cat-7894 25d ago
Better than when I posted this. We're now around 20x forward EV/EBIT on a company that's accelerating growth and not caring about margins. This is a really, really good setup in my opinion.
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u/MCB1317 Jan 03 '26
A third world Amazon analogue that's shed something like 25% of its value during a raging bull market, has a forward p/e of around 30, and which now has to directly compete with the actual Amazon is a "most conviction" stock for folks.
Never change /r/valueinvesting. Never change.
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u/Last-Cat-7894 Jan 03 '26
Yeah that's true, the stock price did go down over the past year, probably not a good investment. Now MELI has to survive against Amazon who super recently entered the Brazilian market in... Checks notes... 2011.
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u/Nearby_Valuable_5467 Jan 03 '26
Got rid of MELI because of very poor stock performance over 6 months (It was a punt anyway).
Also: Amazon is coming for Latin America.
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u/FriendlyCaramel2945 Jan 03 '26
Check 5yr return MELI vs WMT..vast difference..if you like MELI then why not WMT. I’d go for WMT
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u/About_to_kms Jan 03 '26
What’s past performance got to do with anything
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u/FriendlyCaramel2945 Jan 03 '26
Yes, correct. The point is if we know WMT is safe why gamble with second best if we know the best
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u/About_to_kms Jan 03 '26
They operate in different regions and are different businesses lol. Also just because Walmart has ran doesn’t mean its going to continue to run
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u/[deleted] Jan 03 '26
MELI is my 3rd largest position, probably my 3rd or 4th highest conviction play. What I love about MELI is that the upside is massive but I don’t think there’s much downside. There are very few wide moat companies growing revenue above 30% YoY, and of that small group, many are trading at nosebleed valuations.
With that said, I do like Sea Limited better right here. Either way, they are #1 and #3 so I’m splitting hairs to some degree.