MercadoLibre's Next Earnings Report Could Send the Stock Soaring

On Wednesday, MercadoLibre (MELI) is set to release its third-quarter earnings report, a time of uncertainty for the stock. The company's shares plummeted last week amid a decline in Brazilian stocks following Luiz Inácio Lula da Silva's re-election as Brazil's president, which defied expectations. MercadoLibre's shares have declined by 16% year-to-date due to rising competition and increased investments in the business.

With the absence of earnings guidance, investors should brace for significant stock movements following the report, as they now have fewer benchmarks to gauge results.

Analysts expect revenue to rise by 44.6% to $10.7 billion and earnings per share to climb from $8.32 to $9.27, even though margins are anticipated to narrow. Investors will closely monitor operating margin, as the market remains cautious about the impact of MercadoLibre's investment cycle. The business is investing in logistics and its credit card offerings, both of which have impacted margins due to upfront marketing and onboarding costs.

Management remains confident in the credit book's profitability and the company's robust cash generation, profitability, and healthy balance sheet. This outlook has motivated continued investments.

Despite falling 16% this year, MercadoLibre's stock may be undervalued. Its performance under Lula's leadership has been impressive, with 30 consecutive quarters of 30% or better revenue growth. Furthermore, the company could benefit from broader market concerns about AI stocks, as MercadoLibre offers a tech-forward growth stock not directly tied to AI.

MercadoLibre's investments have a proven track record, enabling consistent revenue growth at a rate of 30% or better for the past 30 quarters. The company is expanding into new Latin American markets, bolstering its credit business, and its core e-commerce and fintech operations remain strong. While the timeline for a margin turnaround remains unclear, with investors potentially waiting until 2027, MercadoLibre appears well-positioned as a buy, and long-term investors may discover a bargain in the stock, especially if a sell-off occurs following a lack of margin improvement.