Investing in MercadoLibre (NASDAQ:MELI) five years ago would have delivered you a 309% gain

Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the MercadoLibre, Inc. (NASDAQ:MELI) share price. It's 309% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. It's also good to see the share price up 17% over the last quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for MercadoLibre

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last half decade, MercadoLibre became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the MercadoLibre share price is up 65% in the last three years. During the same period, EPS grew by 183% each year. This EPS growth is higher than the 18% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 53.13.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how MercadoLibre has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling MercadoLibre stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's good to see that MercadoLibre has rewarded shareholders with a total shareholder return of 32% in the last twelve months. Having said that, the five-year TSR of 33% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand MercadoLibre better, we need to consider many other factors. For example, we've discovered 1 warning sign for MercadoLibre that you should be aware of before investing here.

But note: MercadoLibre may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.