MELI - MERCADOLIBRE STOCK ANALYSIS
Summary
Sven provides a comprehensive analysis of Mercado Libre (MELI), framing it as a rapidly growing e-commerce and fintech company dominating the Latin American market. He highlights its extensive ecosystem, which includes a marketplace, shipping, shops, ads, insurance, and payments, likening it to a combination of Alibaba and Amazon tailored for the region. Sven notes the vast market opportunity with 500 million people and significant GDP growth potential, emphasizing that the company has exhibited staggering growth over the past decade, with e-commerce, digital ads, and fintech continuing to scale.
Despite Mercado Libre's current strategy of heavy investment leading to a slight decline in profitability and income, Sven views this as acceptable given the company's impressive 40% annual growth rate. He addresses Wall Street's concerns regarding margin suppression and increasing competition in credit, dismissing them as "linear thinking." Sven asserts that Mercado Libre, much like Amazon, prioritizes long-term growth and has the flexibility to adjust margins as opportunities evolve, with all cash flows currently being reinvested rather than generating free cash flow.
In his valuation, Sven uses a conservative model, assuming 25% annual growth for the next five years, slowing to 15%, with a 10% discount rate and a 15 P/E ratio. Under these assumptions, he calculates an intrinsic value of $1,000 for a 10% expected return, noting that the current stock price is "still far from current levels" for this return. He clarifies that his conservative approach aims for actionable investments rather than Wall Street-style projections. For a best-case scenario with 30% growth for five years and a 20 terminal multiple, the stock is priced for an 11% likely return. He also suggests that if MELI can maintain 40% growth over the next two years, it would be priced for a 10-15% return even with conservative estimations.
Sven outlines several significant risks associated with Mercado Libre, including the inherent volatility and cyclical nature of the Latin American market, where 40-60% drawdowns are to be expected. He also points to growing competition from players like Temu, Shein, and Amazon, as well as risks related to its credit portfolio, ethics, and potential global economic crashes. He warns that even small changes in growth rates can have a substantial impact on the stock's performance and Wall Street projections. Sven mentions that Michael Burry holds a significant position in Mercado Libre and is also waiting for lower prices before considering it a strong buy. Sven personally adopts a cautious stance, placing MELI on his "covered stock list" and "quadrant," intending to buy when it becomes cheaper, ideally during periods of "absolute pessimism" in Latin America. He suggests a starting position of 2% in a portfolio, increasing if the price falls further due to identified risks, with an intention to hold for five years.
Mentioned Stocks
Reasoning: Sven views Mercado Libre as a rapidly growing e-commerce and fintech ecosystem in Latin America, showing 40% annual growth, despite short-term profitability declines due to strategic reinvestments. While his conservative valuation model (25% growth, 15 P/E) suggests the intrinsic value of $1,000 is still far from current levels for a 10% return, a best-case scenario (30% growth, 20 P/E) implies an 11% return at current prices. He believes Wall Street is too linear in its focus on margins. Sven suggests initiating a 2% portfolio position if it's a top pick, and increasing it if prices drop further. He personally intends to buy when the stock is cheaper, ideally during periods of "absolute pessimism" in Latin America, noting that Michael Burry is also waiting for lower prices.