Loss-Making MercadoLibre, Inc. (NASDAQ:MELI) Set To Breakeven

By
Simply Wall St
Published
March 03, 2021
NasdaqGS:MELI

With the business potentially at an important milestone, we thought we'd take a closer look at MercadoLibre, Inc.'s (NASDAQ:MELI) future prospects. MercadoLibre, Inc. operates online commerce platforms in Latin America. The US$82b market-cap company announced a latest loss of US$707k on 31 December 2020 for its most recent financial year result. The most pressing concern for investors is MercadoLibre's path to profitability – when will it breakeven? We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

View our latest analysis for MercadoLibre

Consensus from 24 of the American Online Retail analysts is that MercadoLibre is on the verge of breakeven. They expect the company to post a final loss in 2020, before turning a profit of US$162m in 2021. So, the company is predicted to breakeven approximately a year from now or less! How fast will the company have to grow to reach the consensus forecasts that anticipate breakeven by 2021? Working backwards from analyst estimates, it turns out that they expect the company to grow 49% year-on-year, on average, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
NasdaqGS:MELI Earnings Per Share Growth March 3rd 2021

We're not going to go through company-specific developments for MercadoLibre given that this is a high-level summary, however, take into account that generally a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one issue worth mentioning. MercadoLibre currently has a relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in MercadoLibre's case is 85%. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of MercadoLibre which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at MercadoLibre, take a look at MercadoLibre's company page on Simply Wall St. We've also compiled a list of key aspects you should further research:

  1. Valuation: What is MercadoLibre worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether MercadoLibre is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on MercadoLibre’s board and the CEO’s background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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