Shares Free Mercado (NASDAQ: MELI), the leading e-commerce company in Latin America, has grown almost 2,700% over the past 10 years. The Argentina-based company was founded over two decades ago and has leveraged its first mover advantage to expand into 18 Latin American countries.

It has repeatedly dazzled investors with its robust growth, the relentless expansion of its logistics network and the rigidity of its Mercado Pago digital payment platform. MercadoLibre’s growth accelerated throughout the pandemic, and its recent second quarter report – which featured its fifth consecutive quarter of triple-digit local currency sales growth as a year-over-year percentage – indicates that it is still running at full speed.

Image source: Getty Images.

However, investors might be hesitant to buy its high-flying stocks, which are trading at over 400 times forward earnings and 14 times this year’s sales. Is it too late to buy MercadoLibre, or is it still a good investment in the booming e-commerce market in Latin America?

How fast is MercadoLibre growing?

A look back at MercadoLibre’s year-over-year growth in Gross Merchandise Volume (GMV), Total Payment Volume (TPV), Unique Active Users and Total Currency Revenue community over the past year reveals how much its growth has accelerated throughout the pandemic.

Growth (YOY)

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

GMV

102%

117%

110%

114%

46%

POS

142%

161%

134%

129%

72%

Unique active users

45%

92%

71%

62%

47%

Income

123%

148%

149%

158%

103%

Data source: MercadoLibre. Terms in local currency. YOY = Year after year.

MercadoLibre generates most of its revenues in Brazil, Argentina and Mexico. Here’s how quickly these three main markets have grown.

GMV Growth (YOY)

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Brazil

58%

74%

84%

92%

44%

Argentina

230%

242%

185%

183%

61%

Mexico

122%

109%

110%

114%

29%

Data source: MercadoLibre. Terms in local currency. YOY = Year after year.

MercadoLibre’s growth rates are still impressive, but it will inevitably face more difficult year-over-year comparisons as COVID-19 restrictions are relaxed. However, MercadoLibre’s GMV continues to grow in addition to its impressive growth throughout the pandemic – so its activity is not slowing down at all.

MercadoLibre also has plenty of room to grow. On the last conference call, CFO Pedro Arnt cited a recent report from eMarketer which named “Latin America as the world’s leading region for e-commerce sales growth, with projections of nearly 10 percentage points above the world average “. The company also named Brazil, Argentina and Mexico as three of the five fastest growing e-commerce markets in the world.

How does MercadoLibre widen its moat?

MercadoLibre’s main defense against foreign challengers like Amazon (NASDAQ: AMZN) and Limited sea‘s (NYSE: SE) Shopee is its self-managed Mercado Envios logistics network, which enables it to ship products to difficult terrain and underdeveloped regions.

Mercado Envios processed 83% of its deliveries in the second quarter, up from just over 50% a year ago, and now allows MercadoLibre to complete most of its deliveries in just 1.5 days.

Mercado Pago, which processes digital payments for its own marketplace and external businesses, is also locking down its users and widening its gap even further. In the second quarter, Mercado Pago’s 72% TPV growth represented nearly 730 million transactions in total. Its off-platform POS increased 94% year-over-year.

Mercado Pago also offers investment accounts in its mobile wallet. It ended the second quarter with more than 19 million active investment accounts, up from 11.4 million a year ago and 15.7 million in the first quarter. This sprawling fintech ecosystem makes it a promising long-term game in the “war on money”.

What are the biggest threats to MercadoLibre?

The biggest threat to MercadoLibre is soaring inflation in Latin America, which is slowing its year-over-year growth in US dollars. For example, MercadoLibre’s revenue grew by 127% at constant exchange rates in 2020, but only grew by 73% on a basis published in USD.

Analysts expect MercadoLibre’s revenue to rise 58% in USD this year, but unpredictable currency headwinds suggest investors shouldn’t rely too heavily on these forecasts.

Social unrest could also hamper MercadoLibre’s growth and expansion plans in some countries. For example, it has opened more data and distribution centers in Colombia – but that expansion could be hampered by violent protests across the country against taxes linked to the pandemic. MercadoLibre could also face antitrust challenges as it widens its lead against smaller regional rivals and foreign challengers.

Why it’s not too late to buy MercadoLibre

I don’t think it’s too late to buy MercadoLibre. Brazil, MercadoLibre’s largest market, still only has an e-commerce penetration rate of 12.5%, according to data from Fidelity International, BTG Pactual Research and Euromonitor, against penetration rates of 27, 3% in China and 20.3% in the United States.

MercadoLibre’s other markets likely have even lower penetration rates. Therefore, it would not be surprising to see the number of unique active users of MercadoLibre (75.9 million in the second quarter) and its total addressable market more than double in a few years.

MercadoLibre’s earnings are still slim, but its stock is still slightly cheaper relative to its sales than Sea, which is trading at 19 times this year’s sales. Its stock could remain volatile, but I expect the company – which has an enterprise value of $ 89 billion – to grow much more in the next few years.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Leo Sun owns shares in Amazon, MercadoLibre and Sea Limited. The Motley Fool owns stock and recommends Amazon, MercadoLibre, and Sea Limited. The Motley Fool recommends the following options: January 2022 long calls at $ 1,920 on Amazon and January 2022 short calls at $ 1,940 on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.