MercadoLibre (MELI)

MercadoLibre is Latin America's leading e-commerce and fintech company, and it grew 46% in dollars over the last twelve months; the second quarter of 2026 was the fastest in four years. Growth is driven by Brazil and Mexico, which together contribute ~77% of revenue. At constant currency the consolidated figure grows 43%, so the growth is genuine and not an effect of foreign exchange or of Argentine inflation. It is a quality business, with a wide moat (network, in-house logistics, credit data and brand) and negative working capital that funds it on its own.

The valuation is a sum of the parts: each line with its own method and multiple —commerce and advertising at EV/NOPAT (20×, a capital-light marketplace), Mercado Pago at EV/EBIT (17×, acquiring) and Mercado Crédito at a lender's P/E (15× normalized earnings, not a marketplace premium)—. The correct measure of cash is not reported operating cash flow —inflated by the float— but the adjusted free cash flow the company publishes, US$1.13bn over the last twelve months; that is why today's multiple (50× P/E) is misleading: it is the wrong lens for a business compressed by investment.

The projection assumes a gradual deceleration (~40% to ~20%, starting from the constant-currency rate rather than the headline) and a slow, partial margin recovery: next year it drops to 7.5% —the current run rate, not the last-twelve-month average— and only by the fifth year reaches ~11.5%, below the 13.5% assumed in the previous version and far from the historical peak of 14.6%. At ~$1,988 —below the all-time high of $2,645— the sum of the parts anchors at ~$3,922 per share over five years, equivalent to an annual return (CAGR) of +15%. The discounted cash flow, brought to today at the method's risk-free rate, yields a per-share value above the market price and reinforces the reading from multiples.

At ~$1,988, the expected return is +15%, and the margin against the 15% threshold demanded of a great investment is -2%. The verdict is Undervalued. The gap between market perception —which extrapolates the margin decline and reads a voluntary investment as deterioration— and the reality of the business —whose growth is accelerating— is the source of the opportunity. The honest objection is that, for now, only the cost is visible: the incremental return on invested capital is negative.

The real uncertainty is not growth, which is solid, but the margin recovery: the adverse scenario, with the margin stabilizing at ~8.5%, yields a return of -7%. It is the most sensitive assumption in the case, and the concrete test to follow is whether the quarterly margin stops falling: it was 6.9% and then 6.7%, with management describing it as broadly stable versus the prior quarter. The second front is the credit cycle: the book is growing 75% —29 points faster than revenue— with net interest margin after losses compressing to 20.7% and the card already in negative territory (−2.5%) because of the step-up in issuance. And one methodological caveat: because MercadoLibre reports by geography rather than by business line, the allocation of segment margins in the sum of the parts is an analyst estimate —the largest source of uncertainty in the case—.