MercadoLibre Stock Continues to Struggle to Find Traction. Is the Stock a Buy on the Dip, or Is It Time to Throw in the Towel?

Shares of MercadoLibre (NASDAQ: MELI) sank even as the company yet again reported robust revenue growth. Unfortunately for investors, MercadoLibre's stock has largely run in place over the past five years, up less than 20%, while revenue has risen more than sevenfold from $4 billion in 2020 to $28.9 billion in 2025.

That's a huge disconnect between the Latin American e-commerce company's operational performance and its stock price. MercadoLibre remains in investment mode to drive growth, and investors clearly haven't been happy with that decision. The stock is now down around 18% on the year.

Let's dig into the company's Q1 results and prospects to see whether now is the time to buy the stock or throw in the towel.

Revenue continues to soar, but margin shrinks

While MercadoLibre's revenue grabbed headlines, investors were more concerned about the company's operating margins, which shrank to 6.9%. However, the company made it clear that it was not willing to manage short-term margins at the expense of investing in growth initiatives to placate investors.

MercadoLibre said it has a "once-in-a-generation opportunity to transform how hundreds of millions of Latin Americans shop, pay, and access financial services," and it is going to aggressively invest to capture this opportunity. Management further noted that there are no plans to change the current level of investment in the near term.

In terms of revenue growth, its investments are paying off. For the first quarter, MercadoLibre's revenue surged 49%, or 46% in constant currencies, to $8.85 billion. That was its strongest revenue growth since Q2 2022 and easily ahead of the $8.32 billion consensus. Its earnings per share (EPS) fell 16% to $8.23 but topped the $8.20 consensus.

Among the investments weighing on profitability are the company lowering its free shipment threshold in Brazil and building out its logistics and fulfillment infrastructure in less mature markets. In addition, the company also cut take rates in Brazil for sellers that are competitively priced. It is also aggressively investing in building out its fintech and credit card portfolio.

Gross merchandise volume (GMV), which is the value of goods sold through its e-commerce platform, jumped 42% to $19 billion. Its largest market, Brazil, saw a 38% currency-neutral jump in GMV, while the number of items sold climbed 56%, double the growth rate before it lowered its free-shipping threshold. Mexico's GMV climbed 28% on a currency-neutral basis, while Argentina's GMV jumped 41% and Chile's GMV soared 40%.

MercadoLibre also continues to see strong growth in its fintech business, with monthly active users increasing 29%. The company saw its credit card portfolio once again nearly double year over year to $14.6 billion, as it issued 2.7 million new cards just in the quarter. Non-performing loans in its credit card portfolio, meanwhile, were stable year over year at 8%.

At the same time, its assets under management surged 77% to $20 billion. Total payment volumes through Mercado Pago climbed 50%, or 55% in constant currencies, to $87.2 billion.

Image source: The Motley Fool.

Is MercadoLibre stock a buy?

MercadoLibre is building a mega e-commerce and fintech service platform that's unrivaled in Latin America. The company sees the potential opportunity in front of it to grow these platforms, and it's not unlike how Amazon grew its e-commerce business and SoFi built its fintech service operations in the U.S. The company is doing the right thing by investing in its business, which should pay off in the long run.

From a valuation perspective, the company trades at a forward price-to-earnings ratio (P/E) of 24 based on 2027 analyst estimates and a price/earnings-to-growth (PEG) ratio of below 0.8 (a PEG under 1 is typically considered undervalued). That's attractive, especially for a company not currently trying to optimize profits.

As such, I'd be a buyer of the stock, although I think investors will need to continue to be patient.

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