With a daily loss of -4.14%, a 3-month gain of 12.07%, and an Earnings Per Share (EPS) of 14.94, MercadoLibre Inc (MELI, Financial) appears to be significantly undervalued. This article will conduct an in-depth analysis of MercadoLibre's valuation and financial strength, aiming to answer the question: Is the stock truly undervalued? Let's delve into the details.
Company Overview
MercadoLibre Inc (MELI, Financial) operates the largest e-commerce marketplace in Latin America, boasting a network of more than 148 million active users and 1 million active sellers across 18 countries. The company's diversified operations include shipping solutions (Mercado Envios), payment and financing operations (Mercado Pago and Mercado Credito), advertising (Mercado Clics), classifieds, and a turnkey e-commerce solution (Mercado Shops).
The company's stock price stands at $1326.43, with a market cap of $66.40 billion. Interestingly, the GF Value, an estimation of fair value, is $2082.26, suggesting that the stock could be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, MercadoLibre appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Assessing Financial Strength
Before investing in a company, it is crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. MercadoLibre's cash-to-debt ratio of 0.6 is better than 54.85% of companies in the Retail - Cyclical industry, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies usually carries less risk. MercadoLibre has been profitable for 7 out of the past 10 years. With revenues of $12.10 billion and an operating margin of 12.71%, the company's profitability is ranked as fair.
The company's growth is impressive, with a 3-year average annual revenue growth of 63.3% and a 3-year average EBITDA growth rate of 254.8%. These metrics rank better than most companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is a useful way to evaluate its profitability. MercadoLibre's ROIC of 11.91 is less than its WACC of 13.06, suggesting that the company could do better in creating value for its shareholders.
Conclusion
In conclusion, MercadoLibre's stock appears to be significantly undervalued. The company has fair financial strength and profitability, and its growth ranks higher than most companies in the Retail - Cyclical industry. To learn more about MercadoLibre, you can check out its 30-Year Financials here.
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