Here's Why MercadoLibre (NASDAQ:MELI) Has Caught The Eye Of Investors

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like MercadoLibre (NASDAQ:MELI), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for MercadoLibre

How Fast Is MercadoLibre Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that MercadoLibre grew its EPS from US$1.57 to US$5.39, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note MercadoLibre achieved similar EBIT margins to last year, revenue grew by a solid 54% to US$9.7b. That's a real positive.

In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for MercadoLibre's future profits.

Are MercadoLibre Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

In the last year insider at MercadoLibre were both selling and buying shares; but happily, as a group they spent US$174k more on stock, than they netted from selling it. Although some people may hesitate due to the share sales, the fact that insiders bought more than they sold, is a positive thing to note. Zooming in, we can see that the biggest insider purchase was by Executive VP of Corporate Affairs & President of Argentina Juan De La Serna for US$201k worth of shares, at about US$939 per share.

On top of the insider buying, it's good to see that MercadoLibre insiders have a valuable investment in the business. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$131m. This comes in at 0.3% of shares in the company, which is a fair amount of a business of this size. This should still be a great incentive for management to maximise shareholder value.

Is MercadoLibre Worth Keeping An Eye On?

MercadoLibre's earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe MercadoLibre deserves timely attention. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with MercadoLibre , and understanding this should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of MercadoLibre, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.