The Market Keeps Punishing MercadoLibre for Growing Too Fast. Here's Why That's Exactly When to Buy.

MercadoLibre's (NASDAQ: MELI) stock price recently closed above $1,950, still roughly 26% below its 52-week high, and the pattern this year has been almost comic: The company reports record revenue and beats estimates, but the stock drops.

In May, MercadoLibre posted its fastest revenue growth in four years, and the stock fell 12.7% the next day. In August, it crossed $10 billion in quarterly revenue for the first time and beat on both lines, but shares dropped as much as 9% before settling down by about 4.5%. Thirty consecutive quarters of 30% or better growth ... and the market keeps flinching.

Image source: Getty Images.

The reason is always the same: Operating margin compressed to 6.7% from 12.2% a year earlier, and profit declined for a third straight quarter. Analysts wince every time management signals more spending on logistics and Mercado Pago.

What the spending actually buys

Here's where I part ways with that reaction. CFO Martin de los Santos told analysts directly that slowing investment to lift near-term margins would be easy, and the company was choosing not to. "We are not optimizing for short-term margin," he said. "We will continue to invest boldly in those initiatives."

The money goes to specific places:

• Free and fast shipping in Brazil, where MercadoLibre lowered the free shipping threshold to defend its largest market.
• Expansion of the Mercado Pago credit card.
• First-party inventory selection.
• Cross-border trade.
• A logistics and credit build-out concentrated in Brazil.
• User acquisition in its expanding Mexico market.

The results show up in engagement rather than earnings. The company added roughly 84 million active buyers and 82 million fintech users.

The accounting piece most people miss

Two-thirds of the margin compression comes from a mechanical quirk rather than deteriorating economics. MercadoLibre's credit book is growing at 87% year over year, faster than revenue. Because the company provisions for the full expected loss on a loan at issuance, faster credit growth depresses margins before those loans ever become profitable.

Think about what that means: Every dollar of new lending shows up as a cost today and revenue over the following quarters. A company growing its loan book at 87% will always look less profitable than one growing it at 10%, even if the underlying credit performs identically.

The ecosystem argument makes this ticker a buy

Mercado Pago started as a payment tool for the marketplace. It now offers digital wallets, QR code payments, credit services, and financial tools to people who may never have had a bank account. Mercado Envios handles warehousing, shipping, and last-mile delivery through distribution hubs across Latin America.

Neither piece works as well alone. The marketplace generates the transaction data that enables underwriting. The credit product raises purchase frequency. The logistics network makes delivery promises credible enough to compete with global entrants. That is a genuine flywheel, and building it requires exactly the spending that the market is punishing.

Why the punishment creates the opportunity

Valuation has compressed while the business has expanded. The ratio of forward enterprise value to revenue fell from 3.8 in March 2025 to 2.1; the ratio of enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) moved from around 23.7 to 21.4. You are paying meaningfully less per dollar of revenue than you were 18 months ago for a company growing revenue by 50%.

I think the real risk here isn't the spending itself, it's the credit quality of a loan book that's growing this quickly. That's the part I'm watching most closely. Assuming credit losses remain manageable and the company continues to grow without taking on excessive risk, I think the market may be overreacting to current concerns.

Essentially, this is a company being punished for doing the exact thing that helped build the business in the first place: growing aggressively and expanding its lending business.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.