The stock of MercadoLibre (NAS:MELI, 30-year Financials) appears to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $1431.97 per share and the market cap of $71.4 billion, MercadoLibre stock is estimated to be modestly overvalued. GF Value for MercadoLibre is shown in the chart below.
Because MercadoLibre is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 42.6% over the past three years and is estimated to grow 38.54% annually over the next three to five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. MercadoLibre has a cash-to-debt ratio of 1.81, which which ranks better than 72% of the companies in the industry of Retail - Cyclical. The overall financial strength of MercadoLibre is 5 out of 10, which indicates that the financial strength of MercadoLibre is fair. This is the debt and cash of MercadoLibre over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. MercadoLibre has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $4 billion and loss of $0.07 a share. Its operating margin of 3.21% in the middle range of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks MercadoLibre's profitability as fair. This is the revenue and net income of MercadoLibre over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of MercadoLibre is 42.6%, which ranks better than 96% of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth is 28.9%, which ranks better than 80% of the companies in the industry of Retail - Cyclical.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, MercadoLibre's ROIC is -0.07 while its WACC came in at 10.47. The historical ROIC vs WACC comparison of MercadoLibre is shown below:
In short, the stock of MercadoLibre (NAS:MELI, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 80% of the companies in the industry of Retail - Cyclical. To learn more about MercadoLibre stock, you can check out its 30-year Financials here.
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