MercadoLibre Stock Is on Sale. Here's What $5,000 Invested Today Could Do for Your Portfolio.

MercadoLibre (NASDAQ: MELI) has been the top stock to own on the market for most of its history.

Since its IPO, the Latin American e-commerce company has delivered stock growth of 5,500%. However, recently the stock has pulled back sharply on concerns about competition from the likes of Amazon and Sea Limited's Shopee, and margins have fallen as it steps up investments in logistics and other initiatives.

With the stock now down 40% from its peak, here's how investing $5,000 in the stock could double your money over the next few years.

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Where MercadoLibre stands today

MercadoLibre has delivered strong top-line growth over its history, and that continued into the fourth quarter with revenue up 45% to $8.76 billion.

However, operating margins did decline, falling from a 14.6% in the quarter a year ago to 10.1%, which the company attributed to its strategic investments in free shipping, first-party e-commerce, cross-border trade, and its credit card business.

While the sell-off is understandable, the top-line growth shows that MercadoLibre is still chasing a large growth opportunity as it expands into new markets in Latin America and further penetrates its core markets like Brazil, Mexico, and Argentina.

MercadoLibre has also built an impressive set of competitive advantages, including its third-party marketplace, digital payments and fintech business, logistics business that delivers customer orders, and a credit business. Much like Amazon, those businesses are interconnected, reinforce each other, and are difficult to replicate. The company also has its own subscription membership program, MELI+, that offers similar benefits to Amazon Prime, including free delivery.

Can MercadoLibre bounce back?

Investor sentiment has soured since the war in Iran began, and higher oil prices are going to pressure e-commerce and logistics companies. However, the company has fended off competition from Amazon and others in the past, and investors may need to see evidence that it can do it again. In order for the stock to start recovering, investors may need to see its operating margin expanding again, or at least stabilizing.

MercadoLibre doesn't provide guidance, which is likely adding to those concerns, which means that investors will need to assess each quarter at a time.

Still, it's a mistake to think that a company growing sales by 45% in a developing market is at risk of being disrupted. MercadoLibre isn't cheap, but at a price-to-earnings ratio of 40, the stock seems well-priced for its growth potential.

Jeremy Bowman has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Sea Limited. The Motley Fool has a disclosure policy.