Does MercadoLibre’s 8.6% Weekly Rally Present a Fresh Opportunity in 2025?

Thinking about what to do with MercadoLibre shares? You are not alone. The Latin American e-commerce and payments powerhouse has been on quite a ride lately. Whether you are weighing a new buy, considering holding on, or just want some clarity, you are in good company. Over the past week, MercadoLibre’s stock jumped an impressive 8.6%, helping to recoup some ground after a shaky month that saw prices dip by 7.5%. You would hardly guess there was turbulence, given that the stock is still up 29.3% so far this year and an incredible 153.1% over the past three years.

Much of this momentum can be traced to a flurry of recent developments. Regulatory updates around digital payments have reduced some uncertainties, while upbeat commentary from regional business leaders has reassured investors about MercadoLibre’s competitive position. It is worth mentioning that while the company remains a magnet for growth stories, not every bit of news immediately moves the needle. Even so, long-term confidence has clearly built up a solid track record of returns.

Now, here is where it gets interesting: on a valuation scorecard, MercadoLibre currently checks in at a 3 out of 6 numerically undervalued boxes. That suggests the stock is neither screamingly cheap nor glaringly expensive. There is a lot more nuance once you dig into the different approaches analysts use to gauge a company’s worth. In the sections ahead, we will break down key valuation methods and keep an eye out for a final perspective that adds a fresh twist to how you size up MercadoLibre’s value.

Why MercadoLibre is lagging behind its peers

Approach 1: MercadoLibre Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model aims to estimate a company's intrinsic value by projecting future cash flows and discounting them back to today’s dollars. For MercadoLibre, this method focuses on how much cash the business is expected to generate in the years ahead and what those future dollars are worth right now.

Currently, MercadoLibre reports Free Cash Flow (FCF) of approximately $7.5 Billion. Analysts forecast steady growth, projecting FCF to reach about $9.6 Billion by 2027. Simply Wall St extrapolates these numbers out to a ten-year horizon for a more comprehensive picture. This long-range outlook incorporates both analyst predictions for the next five years and modest, well-founded growth estimates beyond that period.

By aggregating and discounting these cash flow projections, the DCF model arrives at an estimated intrinsic value of $2,695 per share. With the stock currently trading at a market price that reflects an implied discount of 15.3%, MercadoLibre appears undervalued according to this method.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for MercadoLibre.

Our Discounted Cash Flow (DCF) analysis suggests MercadoLibre is undervalued by 15.3%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: MercadoLibre Price vs Earnings

The Price-to-Earnings (PE) ratio is often the go-to valuation tool for profitable companies like MercadoLibre. It tells investors how much they are paying today for each dollar of current earnings, making it useful when steady profits provide a reliable yardstick for comparison.

The “right” PE ratio is rarely one-size-fits-all. Higher growth prospects, stronger profitability, or lower risk can justify a premium multiple. In contrast, mature or riskier companies often trade at a discount. That said, context really matters. MercadoLibre’s current PE ratio stands at 56.4x, which is higher than both the Multiline Retail industry average of 21.0x and its peer group’s 65.2x.

To take this analysis a step further, Simply Wall St calculates a proprietary “Fair Ratio,” which in this case is 34.1x. This metric goes beyond comparing sector averages or peers by factoring in MercadoLibre’s growth forecasts, profit margins, risk profile, business model, and market capitalization. As a result, the Fair Ratio provides a more tailored benchmark for what investors might reasonably pay for MercadoLibre right now.

Since MercadoLibre’s current PE is notably above the Fair Ratio, this suggests the stock is priced ahead of its fundamentals on this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your MercadoLibre Narrative

Earlier we touched on the idea that a smarter way to approach valuation exists. Let’s introduce you to Narratives. In simple terms, a Narrative is your story behind the numbers. It is where you set out what you believe about MercadoLibre’s future revenue, profit margins, risks, and what represents a fair share price, connecting your perspective to a real financial forecast and then to a fair value.

Narratives are easy to use and available on Simply Wall St’s Community page, where millions of investors share their viewpoints. By crafting or browsing different Narratives, you can quickly see how a story about the business translates into an expected future value. You can then compare this fair value against today’s share price to help guide your buying or selling decisions. Best of all, Narratives update automatically when important news or results are released, so your thinking stays relevant.

For example, some investors see MercadoLibre’s expanding fintech business and improvements in logistics as evidence of sustainable high revenue and margin growth, leading to a fair value of $3,500 per share. Others are more concerned about competition and margin pressure, resulting in a value closer to $2,170. Narratives allow you to weigh these differing perspectives and create one that reflects your own view.

Do you think there's more to the story for MercadoLibre? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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