MELI - MercadoLibre: Pull Back In Price Creates Buying Opportunity

2024-03-13 06:19:44 ET

Summary

• MercadoLibre's stock dropped 16% after posting 4Q results, despite a strong core business and competitive edge.
• The e-commerce segment in Latin America is expected to grow, with MELI's take rate increasing and strong logistics operations.
• The fintech business is set to outgrow e-commerce, with MercadoPago's usage of the platform driving growth and high profitability in credit offerings.

In November 2023, I first time wrote about MercadoLibre (MELI), where I described MELI as a great company, but I advised caution with a Hold rating as I have seen too much optimism priced into the stock. Since then, MELI's stock reached a high of 1,800 dollars per share, but subsequently declined over 16% after posting 4Q2023 results at the end of February. Despite solid results, the company booked extraordinary one-off items related to tax charges and missed analyst estimates on earnings and EPS. In the following paragraphs, I argue that MercadoLibre's competitive edge has stayed untouched and that core business remains strong and booming. As I see no fundamental change in MELI's future performance, I believe that patient investors could use this pullback in price to increase their position in this long-term compounder. In analyzing the company, I looked at the e-commerce segment and fintech segment separately and looked at the moats of both businesses. Subsequently, I used these insights into the DCF valuation of the consolidated company. Based on my valuation, MercadoLibre seems to be undervalued approximately by 25% with an estimated value per share at 1,874 US dollars....

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