MercadoLibre Shares Sink. Is the Stock a Buy as Revenue Growth Remains Robust?

Shares of MercadoLibre (NASDAQ: MELI) fell despite the company once again reporting robust revenue growth, as it felt some margin pressure. The Latin American e-commerce company has seen its shares move lower over the past year, with the stock down around 20% over that time.

Let's dig into the company's fourth-quarter results and prospects to see if now is a good time to buy the dip.

Revenue continues to soar

For the fourth quarter, MercadoLibre's revenue soared 45%, or 47% in constant currencies, to $8.76 billion. That was easily ahead of the $8.49 billion consensus. However, its earnings per share (EPS) fell 13% to $11.03, missing the $11.44 consensus. This was largely due to operating margin compression, as the company invested in growth initiatives, including free shipping and credit cards.

MercadoLibre is seeing strong growth in its fintech business, with monthly active users climbing about 30% for the 10th straight quarter. The company saw its credit card portfolio roughly double year over year to $12.5 billion, as it issued 3 million new cards just in the fourth quarter alone. Non-performing loans in its credit card portfolio, meanwhile, fell to an all-time low of 4.4%. At the same time, its assets under management soared 78% to $190 billion. Total payment volumes through Mercado Pago jumped 42%, or 52% in constant currencies, to $83.7 billion.

Gross merchandise volume (GMV), which is the value of goods sold through its e-commerce platform, climbed 37% to $19.9 billion, while unique active buyers rose 24% to 83 million in the quarter. Its largest market, Brazil, saw a 35% currency-neutral jump in GMV, with a 26% increase in unique buyers. Mexico GMV also rose 35% on a currency-neutral basis, while Argentina GMV soared 42%.

Ad revenue, meanwhile, surged 67%. The company credited the use to artificial intelligence (AI), which helped automate campaigns and improve its bidding algorithm. It also said AI was helping its sales force acquire high-value merchants more quickly. Management believes the company is well positioned for agentic commerce, saying it will drive more shopping online and also open up more ad opportunities.

Image source: Getty Images.

Is the stock a buy?

The stocks of companies that are in investment mode are just not getting rewarded right now. However, MercadoLibre is growing its revenue quickly, and it generates strong free cash flow even with its capital expenditure investments. This is generally the recipe for long-term success in e-commerce. Meanwhile, its fintech business is proving to be a strong growth driver.

With a forward price-to-earnings ratio (P/E) of 20.5 based on 2027 analyst estimates and a price/earnings-to-growth (PEG) ratio of below 0.5 (a PEG under 1 is typically considered undervalued), the stock is attractively valued. Given its growth and valuation, I'd be a buyer of the stock on this dip.

Geoffrey Seiler has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.