Key Points
While the highest analyst price target is a 72% increase from today's price, even the lowest target is a gain.
MercadoLibre continues to report stellar growth, and it has a wide-open opportunity.
MercadoLibre(NASDAQ: MELI) stock has had a tough year. While the S&P 500 has gained 24%, MercadoLibre stock has lost 34.5%. But has the stock been oversold?
Eight-five percent of covering analysts say to buy the stock right now, and the lowest price target from any Wall Street analyst suggests a 9% upside over the next year. One analyst, Hector Maya from Scotiabank, sees it heading to $2,800, a 72% increase from today's price. Is he right?
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Boosting the shift to digital in Latin America
MercadoLibre hasn't taken a break from high growth for years. It's an e-commerce and financial technology (fintech) company in Latin America, a region that's underpenetrated in both sectors, and it's benefiting as the countries it serves continue to embrace new technology.
Image source: Getty Images.
It has had a 31% compound annual growth rate (CAGR) over the past 10 years, but the long-term opportunity remains compelling. E-commerce penetration is only 14%, compared with 27% in the U.S. and 32% in China, and its markets have a total $5.5 trillion addressable market. MercadoLibre's trailing 12-month revenue of $31.8 billlion is a tiny fraction.
It's the top e-commerce company in the region, and its platform grows through a positive cycle of reinforcing network effects; as more buyers join, more suppliers join, offering a wider array of merchandise. That stimulates engagement, and buyers in at least three categories increased 130% from 2022 through the 2026 first quarter. Over the same time frame, average quarterly purchase frequency rose from 6.8 to 9.
Fintech is a similar story. MercadoLibre has the highest monthly active users in four of its largest markets at 83 million, and credit users increased from 10 million in 2022 to 41.9 million as of the first quarter. The credit portfolio rose from $2.8 billion to $14.6 billion over the same time.
Buy on the dip
Wall Street analysts only give price targets for a 12- to 18-month period. So whatever price they're looking for is relatively short-term. In the short term, MercadoLibre stock could be somewhat pressured; its profitability is taking a hit from investments that are meant to position it for long-term growth.
But if you're a long-term investor, near-term headwinds shouldn't scare you. In any case, at this point, every Wall Street analyst thinks the stock is oversold based on the current price targets, even in the near term. Wall Street certainly doesn't have any guarantees, and what analysts say should always be taken with a large grain of salt. However, when they unite to agree that a stock looks undervalued today, and that jibes with what you know about the stock's performance and opportunities, it's a strong sign that there's value here.
MercadoLibre stock may or may not hit $2,800 by the end of the period, and that price target was actually a downgrade from a previous target of $3,500. But in the long term, it could be a standout stock for patient investors.
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Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.
