Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $MELI 🧘🏽‍♂️

•NTM P/E Ratio: 39.87x
•P/E Ratio Mean: 46.42x

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

Going forward, investors can receive ~16% 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: $3.98B
•Long-Term Debt: $3.43B

$MELI has a strong balance sheet, a BB+ S&P Credit Rating & 52x FFO Interest Coverage

RETURN ON CAPITAL🆗➡️✅
•2020: 3.7%
•2021: 8.1%
•2022: 14.7%
•2023: 25.7%
•2024: 23.0%
•LTM: 19.7%

RETURN ON EQUITY🆗➡️✅
•2020: (0.1%)
•2021: 5.2%
•2022: 28.7%
•2023: 40.3%
•2024: 51.5%
•LTM: 43.8%

$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: 51.5%
•LTM Operating Margins: 12.3%
•LTM Net Income Margins: 8.5%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~16% MORE in EPS

Using Benjamin Graham’s 2G rule of thumb, $MELI has to grow earnings at an 19.94% 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 (19.94%) required growth rate:

2025E: $44.33 (17.6% YoY)

2026E: $66.58 (50.2% YoY)
2027E: $89.03 (33.7% YoY)

$MELI has an ok track record of meeting analyst estimates ~2 years out, but let’s assume $MELI ends 2027 with $80.12 in EPS & see its CAGR potential assuming different multiples

40x P/E: $3204💵 … ~20.2% CAGR

38x P/E: $3044💵 … ~17.5% CAGR

36x P/E: $2884💵 … ~14.6% CAGR

34x P/E: $2724💵 … ~11.7% CAGR

As you can see, $MELI appears to have attractive return potential IF we assume >34x earnings (a multiple justified by its growth rate & moat) & 2027 EPS -10% below estimates

$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 & scale economies shared that produce self-reinforcing dynamics ensuring long-term competitiveness, among other things

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 great return

Today I consider $MELI a compelling consideration for investment at $2130💵

#stocks #investing
___

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

The information contained in this post is intended for informational purposes only and should not be construed as investment advice to meet the specific needs of any individual or situation. Past performance is no guarantee of future results.

Information contained in this post has been obtained from sources believed to be reliable, but is not guaranteed as to completeness or accuracy.
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