Mercado Libre turns 25: How much have its shares risen since it debuted on Wall Street and what will happen next?

Mercado Libre (MELI) was listed on Wall Street on August 10, 2007At that time, it was the first technology company in Latin America to carry out an initial public offering (IPO) in the Nasdaqthe New York stock exchange specializing in technology. The company raised approximately US$333 million in that IPO, with a starting price of US$18 per shareToday, 17 years later, MELI’s role is around US$2,000 which represents an increase of approximately 10,964.39%.

The company of Marcos Galperin celebrated its 25th anniversary this Wednesday and took advantage of the situation to announce that it will invest US$75 million in the construction of a new distribution center, with which the e-commerce giant estimates it will generate some 2,700 jobs. This was celebrated by the president Javier Milei, who attended the event and said in his speech that Mercado Libre “multiplied its shares on the capital market by more than 100 times” in one of the many compliments he gave to the businessman.

Since its IPO, Mercado Libre shares have experienced a significant rise, reflecting the company’s growth in the region and its expansion in areas such as digital payments (Mercado Pago), logistics (Mercado Envíos), and other services. On the day of its debut in Wall StreetThe stock closed the session at $28.50 per share and rose 58.3% on the day.

Thus, MELI’s IPO marked an important milestone for Latin American tech startups, proving that a company from the region could achieve success in international markets. Since then, the Argentine unicorn has established itself as one of the leading e-commerce and technology companies in the region. Something that is reflected in its market capitalization, which is US$105 billion, the largest in Latin America.

Mercado Libre under the magnifying glass of analysts

In dialogue with Scope, Federico Victoriocofounder of Andean Investments (IA) He maintains that, balance sheet after balance sheet, the Argentine company surprises its own and outsiders by providing “almost always” better numbers than those expected by analysts. And he adds that, without going too far, for the results of the second quarter of 2024, it showed a 42% increase in its income, amounting to US$5.073 billion, which resulted in a profit per share of US$10.47 (compared to US$5.21 reported in 2Q23).

Likewise, the improvement in the net margin stands out, ending the last quarter at 10.5% compared to 7.3% in the same quarter of 2023. As for profits, before interest, taxes, depreciation and amortization (EBITDA) closed the quarter at US$880 billion, which represented an increase of 10% compared to the second quarter of 2023.

For Victorio, it is remarkable “The company’s excellent performance in the markets of Mexico, Brazil and, in addition, there are very good prospects for its imminent landing in the USA.“, he says. And that is why, Jefferiesthe bank known for its focus on business analysis, raised the target price of MELI shares $2,250 from $2,100This adjustment, made in August, came after the company’s solid performance in the second quarter and in line with Victorio’s proposals.

Ignacio SniechowskiHead of Equity of IEB Groupexplains in statements to this medium that the best way to put MELI’s growth into perspective is by looking at the cash generation per share (FCF/Share) and its correlation with the share price.

The strategist indicates that this goes beyond what happened in 2020, a period in which the stock soared despite still having a negative cash generation, “something that is explained by the effect of the pandemic and how, thanks to it, online orders skyrocketed” and after the adjustment that the “growth” sector had in 2022 (to which MELI was not alien) “Price follows FCF/Share“.

Mercado Libre: what’s next for its stock

For Sniechowski, MELI has been proving that it continues to generate ““more and more box”. In addition, the potential for growth in the region is still great. He warns: “After the rally that has taken place in recent weeks, which has led the stock to reach historic highs, a period of lateralisation and/or correction is possible. But in the long term, MELI certainly has a lot of value left to give.”.

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Free Market. Courtesy: IEB Group.

And the optimistic reviews of Jefferies for the fiscal year 2024 of Mercado Libre coincide with those of the analysts consulted by this media, since the decision of the firm to reiterate the rating of “Buys“The Argentine unicorn’s stock highlights confidence in the company’s financial performance following its performance in the second quarter.

Investors: the strategy to follow

However, Victorio suggests some caution regarding the company’s positioning and “although he is convinced that MELI is an interesting stock to have in a long-term portfolio, given that its potential and future prospects are enormous,” there is a driver to monitor closely.

Strictly speaking, he explains that at a tactical level, it may be interesting to consider that, at today’s values, the company is trading at almost 75 times earnings (P/E ratio), well above its comparableswhich show P/E ratios around 19. “This makes us think that perhaps in the short term, we should be cautious if we are thinking of adding it to the portfolio for a time period that is not appropriate,” he analyzes.

However, he points out that without a doubt It is a solid company, which has a very good business“But for now we are somewhat cautious about wondering whether, at 75 times earnings, we are in the presence (or not) of a reasonable short-term valuation,” he concludes.

Of course it doesn’t hurt to follow the advice of those who know and Always diversify the stock portfolio, considering the weighting of other types of sectors within the strategy, which could be very interesting considering the rate cut cycle by the US Federal Reserve (FED).