Smart investors like stock splits not just because they reduce a company’s share price, but also because they tend to spotlight good companies. That’s because forward stock splits are only necessary after substantial and sustained share-price appreciation, which rarely happens to mediocre companies. One good example is MercadoLibre (NASDAQ: MELI).
MercadoLibre’s share price has soared 5,950% since its initial public offering (IPO) in August 2007, and Wall Street anticipates substantial gains in 2025. Among the 25 analysts following the company, the median 12-month target price is $2,339 per share. That implies 36% upside from its current share price of $1,725.
Whether or not MercadoLibre splits its stock matters very little. Investors should instead focus on the company’s strength in e-commerce and digital advertising and the stock’s attractive valuation. Here are the important details.
MercadoLibre operates the largest e-commerce marketplace in Latin America. The company accounted for nearly 28% of online retail sales in the region last year, and eMarketer estimates that figure will reach 30% by 2026. One reason MercadoLibre has been so successful is the breadth of its commerce ecosystem.
To elaborate, the company provides adjacent payment-processing services and credit products, fulfillment and shipping support, and ad tech software. Those solutions make the marketplace more convenient for merchants and create more monetization opportunities for the company. And MercadoLibre is a major player in several of those markets.
It has the “fastest and most extensive delivery network in the region,” according to a company slide deck. It’s also the largest retail media advertiser in Latin America and tied with TikTok as the fastest-growing ad tech company in the world in 2024, according to eMarketer. Finally, MercadoLibre has the largest fintech platform in Argentina, Chile, and Mexico, and the second largest in Brazil in terms of monthly active users.
MercadoLibre reported relatively good financial results in the third quarter, despite missing estimates on the bottom line. Revenue rose 35% to $5.3 billion on strong growth in the commerce segment and modest growth in the fintech segment. But GAAP earnings rose just 9% to $7.83 per diluted share due to a 10 point contraction in operating margin.
That weak bottom-line growth disappointed investors, and the stock dropped sharply following the report. Shares currently trade 19% below their record high. On the bright side, the drawdown has created an attractive buying opportunity for patient investors because there are two perfectly good reasons why operating margin declined.
