MercadoLibre Is Well Positioned for Latin America's E-Commerce Boom
But its valuation understates competitive and cyclical pressures.
With strong brand recognition and well-established operations across all major economies in Latin America, MercadoLibre (MELI) remains one of our favorite investment ideas to capitalize on the region's e-commerce boom, which has been driven by higher Internet adoption and disposable income. We forecast average annual growth of about 24% for the next decade and modest operating margin expansion following a period of investment in IT infrastructure, marketing, and payroll during the next several years.
Nevertheless, we think the stock--trading 37% above our $65 fair value estimate--overstates these lofty growth expectations, and we would suggest that investors wait for a wider margin of safety. Signs of a global economic slowdown and softening commodities demand are likely to weigh on export-driven Latin American economies and their currencies in the near term, prompting investors to scale back from emerging-market exposure; this could send the stock down in the coming months. Additionally, Amazon (AMZN) and eBay (EBAY) lurk as potential rivals in Latin America.
Dan Su does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.