The total return for MercadoLibre (NASDAQ:MELI) investors has risen faster than earnings growth over the last three years

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For instance the MercadoLibre, Inc. (NASDAQ:MELI) share price is 244% higher than it was three years ago. How nice for those who held the stock! It's also good to see the share price up 12% over the last quarter. But this could be related to the strong market, which is up 17% in the last three months.

In light of the stock dropping 4.8% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years of share price growth, MercadoLibre achieved compound earnings per share growth of 123% per year. The average annual share price increase of 51% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. Of course, with a P/E ratio of 58.55, the market remains optimistic.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how MercadoLibre has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at MercadoLibre's financial health with this free report on its balance sheet.

A Different Perspective

We're pleased to report that MercadoLibre shareholders have received a total shareholder return of 36% over one year. That's better than the annualised return of 18% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you would like to research MercadoLibre in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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.