For American investors who know it, the story of MercadoLibre (MEL -0.42%) is a masterclass in succeeding in a challenging business environment. The company has found a way to turn outbreaks of high inflation and regulatory chaos into competitive advantages.

As a result, the company has pioneered key sectors in its region and its shares are trading near all-time highs. The question now is whether the company can continue to beat the market over the next five years.

The growth of MercadoLibre

First, if the last five years of MercadoLibre’s history are any indication of the next five years, its future looks bright. The gain of 290% over this period far exceeds the S&P500and includes a sharp sell-off during 2022 bear market.

This is likely because MercadoLibre was the first major e-commerce company operating in Latin America and its non-e-commerce business has evolved into competitive advantages as companies like Amazon And Sea Limited has established itself in some of its markets.

Its fintech arm, Mercado Pago, helps cash customers who can’t purchase with a credit card. Thus, the fact that Latin America is a region with very little banking has worked in its favor. Additionally, its investment arm, Mercado Fondo, has helped Argentines shelter their savings amid soaring inflation in that country. This has also helped the fintech sector thrive in the turmoil.

Its logistics arm, Mercado Envios, can provide shipping and fulfillment services to sellers on its platform. This has improved shipping infrastructure in Latin America and includes an upgrade to same-day and next-day shipping in some regions.

Additionally, both companies serve customers who do not shop on MercadoLibre, increasing MercadoLibre’s revenue potential.

Investors should also remember that, like Amazon, MercadoLibre leverages its vast web presence to sell ads. While it doesn’t release many details about this business in its financial statements, it likely generates high-margin revenue if other large online advertising companies are any indication.

Financial trajectory of MercadoLibre

Given this lucrative opportunity, MercadoLibre’s business is expected to continue to expand over the next five years, and its financial results indicate that massive growth could be ahead.

In the first half of 2024, MercadoLibre generated $9.4 billion in revenue. This represents a 39% increase from year-ago levels. Additionally, the company continues to grow its profits. During the first six months of 2024, net income of $875 million increased by 89%. Although much of this growth comes from reduced foreign exchange losses, the company is clearly turning its revenue gains into higher profits.

Additionally, given its potential, shareholders should probably give the company some leeway on valuation. Although its price/earnings ratio (C/B) is 76, which is arguably a reasonable valuation given its net profit growth. Additionally, Amazon has consistently traded at a higher P/E ratio over its growth history. Meanwhile, MercadoLibre forward P/E ratio of around 57 indicates that the earnings multiple is not far from the company’s expected growth.

Finally, initial profit projections remain favorable. Analysts expect net profit to grow by an average of 42% annually over the next five years. Although this is far too early an estimate and subject to change, it is a hopeful sign of growth for MercadoLibre bulls.

MercadoLibre in five years

It is difficult to predict the state of the world over the next five years. However, MercadoLibre investors have plenty of reasons to be optimistic. The company’s business lines not only serve each other, but also solve many of the region’s problems as separate entities.

The finances of Internet retail stock and direct marketing seem to confirm its successes, and initial projections suggest that growth can continue in the years to come. Given its valuation, investors who buy now will pay a premium, but low enough that outsized gains over the next five years are still within reach.