⁠Dimitry Nakhla | Babylon Capital®
MercadoLibre $MELI stock is up +28.91% YTD & yet the company trades for a valuation ~7% CHEAPER than it was at the start of the year 💸

Strong stock price, stronger fundamentals 👌🏽 https://t.co/Prjeh9bW3i

A quality valuation analysis on $MELI 🧘🏽‍♂️

•NTM P/E Ratio: 44.66x
•1-Year Mean: 47.97x

As you can see, $MELI appears to be trading near fair value

Going forward, investors can receive ~7% MORE in earnings per share 🧠***

Before we get into valuation, let’s take a look at why $MELI is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $3.70B
•Long-Term Debt: $2.82B

$MELI has a strong balance sheet, an ok BB+ S&P Credit Rating & 48x FFO Interest Coverage

RETURN ON CAPITAL🆗➡️✅
•2019: (4.8%)
•2020: 3.7%
•2021: 8.1%
•2022: 14.7%
•2023: 25.7%
•2024: 23.0%

RETURN ON EQUITY🆗➡️✅
•2019: (14.2%)
•2020: (0.1%)
•2021: 5.2%
•2022: 28.7%
•2023: 40.3%
•2024: 51.5%

$MELI has strong and improved return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2019: $2.30B
•2024: $20.78B
•CAGR: 55.30%

FREE CASH FLOW✅
•2019: $314.29M
•2024: $7.05B
•CAGR: 86.32%

NORMALIZED EPS✅
•2019: ($3.71)
•2024: $37.69

SHARE BUYBACKS❌
•2019 Shares Outstanding: 48.69M
•LTM Shares Outstanding: 50.70M

MARGINS🆗➡️✅
•LTM Gross Margins: 52.7%
•LTM Operating Margins: 12.7%
•LTM Net Income Margins: 9.2%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~7% MORE in EPS

Using Benjamin Graham’s 2G rule of thumb, $MELI has to grow earnings at a 22.33% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be more than the (22.33%) required growth rate:

2025E: $46.91 (24.5% YoY)
2026E: $64.98 (38.5% YoY)
2027E: $84.98 (30.8% YoY)

$MELI has an ok track record of meeting analyst estimates ~2 years out, but let’s assume $MELI ends 2027 with $84.98 in EPS & see its CAGR potential assuming different multiples

40x P/E: $3400💵 … ~17.6% CAGR

38x P/E: $3230💵 … ~15.4% CAGR

36x P/E: $3060💵 … ~13.2% CAGR

34x P/E: $2890💵 … ~10.9% CAGR

As you can see, $MELI appears to have attractive return potential IF we assume >36x earnings (a multiple justified by its growth rate & moat)

$MELI boasts an expansive growth trajectory, fueled by powerful network effects that should drive sustained momentum

Key factors contributing to its promising outlook include 🔑

1. Margin expansion

2. Unparalleled access to Latin America's burgeoning economy

3. Network effects that produce self-reinforcing dynamics ensuring long-term competitiveness, among other things

Those buying $MELI today at $2165💵 are buying it for a fair price, with little margin of safety — however, these growth rates have to be revised down substantially for $MELI to miss the mark, even if the company grows earnings at 25% CAGR over the next 5 years, shareholders will likely end up with a decent return

I consider $MELI a strong buy closer to $1945💵 (~10% below today’s price) where I can reasonably expect ~12% CAGR while assuming a conservative 32x end multiple, ensuring some margin of safety

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨[...]

𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲. - Dimitry Nakhla | Babylon Capital® tweet

⁠Quiver Quantitative
Triata Capital, run by Sean Ho, has made an estimated 45% return on its stock portfolio so far this year.

Here’s what they’re doing 🧵 https://t.co/xjdGaMvmwH
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⁠The Kobeissi Letter
BREAKING: Leveraged long equity ETFs assets have dropped $15 billion so far this quarter, to $80 billion, the lowest since Q1 2024.

In other words, nearly 75% of AUM gains over the last 3 quarters have been erased.

However, total assets in leveraged long funds are still 2.5 TIMES larger than the Q3 2022 low of $32 billion.

Meanwhile, leveraged short ETF assets have risen by ~$800 million, to $9.3 billion.

Therefore, for $1 in leveraged short ETFs, there are $9 in leveraged long ETFs, down from $11 at the end of 2024.

Despite the selloff risk appetite is still elevated.
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⁠Finding Compounders
“When stocks get cheaper; How can that not be good news”

Wall Street’s Wisest Man : Charles D Ellis

By Jason Zweig https://t.co/zDCH8BtSbr
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⁠Quiver Quantitative
BREAKING: GameStop is adding Bitcoin as a Treasury Reserve asset.

GameStop is sitting on around $4.6B in cash.

$GME is up 6% so far in after-hours trading.
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⁠The Kobeissi Letter
Some exciting news:

We have been nominated for the "Market Newsletter of the Year" award at the @StockTwits Cashtag Awards.

If you enjoy our work, please consider voting for us at the link in the post below! https://t.co/le26MF8htN
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AkhenOsiris
Toronto Star:

Canada could be on the lower end of U.S. President Donald Trump’s threatened global tariffs next week, the Star has learned.

Nothing, however, is guaranteed until Trump decides ahead of his April 2 deadline — which he’s dubbed “liberation day” for America — and no government officials are taking any assurances for granted, sources said.

As the tense cross-border relationship plays out on the federal election campaign trail, Canadian sources with knowledge of discussions between the two countries say White House officials have suggested Trump may impose three escalating levels of tariffs on America’s trading partners, with Canada getting hit on the lower end of the scale.
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⁠The Kobeissi Letter
US executives are rushing to buy stocks:

The ratio of companies where insiders purchased their own stock versus sold rose to 0.5 in March, the highest since June 2024.

This puts the ratio back to near its historical average, according to Washington Service data.

This is a sharp reversal from 0.2 recorded in January, which was the lowest since 1988, when data began.

Recent insider buying may be a sign of confidence in the economy and their businesses.

However, the level of buying is still well below the peaks seen at the end of 2018, near the 2020 pandemic low, and the 2022 bear market.

Are corporate insiders signaling the sell-off is overdone?
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