Mercado Libre Stock (MELI) Strong Growth and Undervalue in Q2 2025

Mercado Libre (NASDAQ: MELI), the e-commerce and fintech powerhouse of Latin America, delivered a sterling performance in Q2 2025, surpassing expectations with robust revenue growth, solid free cash flow, and continued strength across its multi-service ecosystem. Despite some margin compression, the company’s long-term prospects and valuations present a compelling opportunity. In this article we will dive into Mercado Libre recent earnings, stock performance & valuation, growth potential, and the risks investor should consider.

About Mercado Libre

Founded in 1999 by Marcos Galperin, Mercado Libre began as an online auction platform in Buenos Aires. It has since evolved into Latin America’s dominant e-commerce and fintech ecosystem, spanning marketplace operations, digital payments (Mercado Pago), logistics (Mercado Envíos), credit (Mercado Crédito), advertising (Mercado Ads), among other services. Today, the company operates in most major Latin American markets, including Brazil, Argentina, Mexico, Colombia, and others, serving millions of users and facilitating billions in transactions, a true “Amazon of Latin America.”

Mercado Libre Financial Performance

In Q2 2025, Mercado Libre reported revenue of $6.79 billion, a 33.85% increase from $5.07 billion in Q2 2024, while earnings per share (EPS) came in at $10.32, slightly down 1.51% from $10.47 a year earlier. On a trailing twelve-month (TTM) basis, revenue reached $24.09 billion, up 35.81% from $17.74 billion, and EPS rose sharply to $40.49, marking a 46.7% increase from $27.60. Free cash flow per share (TTM) also strengthened to $145.67, up 31.43% from $110.82. Profitability remains robust, with a gross profit margin of 51.54%, net profit margin of 8.52%, and free cash flow margin of 30.65%. Returns are strong, as evidenced by a return on assets of 7% and a return on equity of 43.83%, while the company maintains a debt-to-equity ratio of 1.58.

Over the past five years, Mercado Libre’s revenue has been growing at a 49.3% CAGR, free cash flow at 58.3%, while net income has also been growing rapidly. Mercado Libre has proven to be a consistent grower and is still projected to grow rapidly in the future.

Mercado Libre Fiscal 2025 Financial Forecast

Looking ahead, analysts forecast 2025 revenue of $27.95 billion, representing 34.53% growth from 2024’s $20.78 billion, and project non-GAAP EPS of $46.94, a 24.54% increase from $37.69 in 2024. Wall Street maintains a Strong Buy consensus on MELI, with an average price target of $2,842.92 implying a 22.16% upside and the highest target of $3,500 offering a potential upside of 50.37%.

MELI Stock Price Performance and Valuation

At the time this article was written the stock was trading at $2,327.30 per share. Mercado Libre’s stock has gained 21.4% over the past year, outperforming the S&P 500’s 18.9% increase in the same period. Over the past five years, MELI has delivered a remarkable 101.2% return, again surpassing the S&P 500’s 91.4% gain. 

From a valuation standpoint, the company trades at a price-to-sales (P/S) TTM ratio of 4.95 and a forward P/S of 4.27, alongside a non-GAAP price-to-earnings (P/E) TTM ratio of 58.06 and a forward P/E of 49.81. Its price-to-free-cash-flow (P/FCF) TTM stands at 15.98, which is quite low and undervalued compared to its rapid growth.

Based on Fiscal.ai data, if we look at the valuation over the past five years, the forward P/S, forward P/E, and P/FCF are all significantly below the average. This indicates potential undervaluation, as Mercado Libre is still projected to grow rapidly.

Mercado Libre Growth Potential

Mercado Libre prospect remains attractive, driven by several factors.

• Rapidly Expanding Fintech Ecosystem
  Mercado Pago, Mercado Libre’s fintech division, is a major driver of growth beyond traditional e-commerce. In Q2 2025, it reached 68 million monthly active users, a 30% increase year-over-year. Total payment volume surged 39% to $64.6 billion, while assets under management more than doubled to $13.8 billion. The credit portfolio grew impressively by 91% to $9.3 billion, with credit cards now accounting for 43% of the credit book after rising 118%.
  This diversification generates multiple revenue streams like payment processing fees, interest income, and financial service commissions. Mercado Pago benefits from strong network effects, increasing user retention and reducing dependence on marketplace sales. By addressing Latin America’s low banking penetration, it taps into a large underserved market, positioning the company to capture significant share as the region advances in digital financial services.
• Dominant Market Position with Defensible Competitive Moats
  Mercado Libre has built a comprehensive ecosystem that creates strong barriers to entry across Latin America’s 18-country market. Its logistics network, Mercado Envíos, now manages 57% of shipments regionally and over 75% in Mexico, delivering 95% of orders within 48 hours. This efficient logistics system boosts customer satisfaction and seller preference, as faster deliveries increase conversion rates and encourage repeat purchases. The capital-intensive fulfillment infrastructure is difficult for competitors to replicate, especially considering Latin America’s complex geography and infrastructure challenges.
  Additionally, Mercado Libre’s deep knowledge of local market dynamics, regulatory requirements, and consumer behavior across multiple countries offers a significant competitive edge over global rivals like Amazon, which depend heavily on third-party logistics. This combination of localized expertise, first-mover advantage, and strong brand recognition creates a virtuous cycle, where scaling further improves unit economics and solidifies market leadership.
• Investment Grade Credit Rating Enhances Financial Flexibility
  Mercado Libre achieved a significant milestone in July 2025 when S&P Global Ratings upgraded the company to investment grade with a 'BBB-' rating, following a similar upgrade by Fitch in October 2024. This dual investment grade recognition reflects the company's strong operational performance, improving profitability, and conservative balance sheet management. The upgrade enables Mercado Libre to access lower-cost debt financing, reducing funding costs for expansion initiatives and working capital needs.
  With debt-to-EBITDA expected to remain below 2.0x and debt-to-tangible equity below 1.0x, the company maintains financial flexibility while pursuing aggressive growth strategies. This enhanced credit profile is particularly valuable given the company's capital-intensive logistics investments and rapidly expanding credit portfolio, which require substantial funding. The investment grade status also signals to investors and partners that Mercado Libre has achieved institutional-quality financial stability, supporting its position as Latin America's digital infrastructure backbone.

Risks to Consider

While Mercado Libre looks like an attractive opportunity, we should be mindful of potential risks.

• Economic and Political Instability
  Latin America faces significant economic volatility, including currency fluctuations, inflation, and political uncertainty. These factors can lower consumer spending and hurt business confidence, which in turn negatively impacts Mercado Libre’s revenue and profitability. Major markets for the company, such as Brazil and Argentina, frequently experience such instability, posing ongoing risks to consistent business performance and growth in the region.
• Regulatory and Legal Risks
  Mercado Libre operates in several Latin American countries, facing a complex and constantly changing regulatory environment. Changes in e-commerce laws, tax rules, and financial regulations may increase compliance costs and create operational difficulties. Additionally, tighter banking regulations could affect the company’s credit and fintech services. Navigating these evolving legal requirements is critical but challenging, as they can impact Mercado Libre’s overall business efficiency and growth prospects in the region.
• Intense Competition
  Mercado Libre faces intense competition in e-commerce and fintech from global giants such as Amazon and regional players like Shopee. To maintain its market position, the company must consistently innovate, invest in marketing, and offer competitive prices. Amazon’s aggressive expansion in key markets like Brazil and Mexico intensifies this challenge, constantly threatening Mercado Libre’s market share and forcing it to adapt swiftly to remain competitive in these crucial regions.

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Conclusion

Mercado Libre’s Q2 2025 results highlight its strong revenue growth, expanding cash flows, and impressive market leadership in Latin America’s e-commerce and fintech sectors. Despite short-term margin pressures, the company’s robust fundamentals, high returns, and long growth runway support continued optimism. With solid analyst projections and a valuation justified by its growth profile, Mercado Libre remains a compelling long-term investment opportunity for investors seeking exposure to high-quality growth in emerging Latin America markets.