Prediction: MercadoLibre stock could soar in the next 5 years if this happens

MercadoLibre (NASDAQ: MELI) has prospered by transforming e-commerce, fintech, and logistics within Latin America. Investors have bid its stock price dramatically higher since its 2007 debut, as the company brought online shopping, digital financial transactions, and improved logistics to the region.

Nonetheless, the market has punished MercadoLibre stock over the past year, and it now trades at a 30% discount to its 52-week high. Investors appeared to sour on the stock because its profit growth was not matching its robust revenue increases. While getting the earnings trajectory back on track will be a challenge, if it can increase its profit growth rate over the next five years, the stock price will likely soar. 

Profit challenges

Two issues have weighed on MercadoLibre's bottom line: rising e-commerce competition and an alarming increase in non-performing loans.

E-commerce giants like Amazon and Sea Limited, as well as numerous smaller enterprises, have attempted to chip away at the company's regional dominance. MercadoLibre responded by lowering its threshold for free shipping and making other moves that squeezed its margins.

On the fintech side of the business, Mercado Pago has attempted to grow by making more loans. Unfortunately, that also meant taking on more risk, and a larger share of its borrowers have stopped servicing their loans. That required it to increase its provision for doubtful accounts by 106% year over year in the first quarter of 2026.

Indeed, its Q1 financials show the scope of the problem well. The company reported over $8.8 billion in revenue, a 49% increase from year-ago levels. However, its net income actually dropped by 16% to $417 million.

How the stock can recover

Still, investors need to keep its rapid revenue growth in mind, as the key to its profit recovery probably lies in addressing its rising expenses. In pursuit of that goal, MercadoLibre has made moves for which investors have likely not given it credit.

The company plans to make up for its lower margins by increasing sales volumes. That should help it grow profits, and perhaps it will experience less competitive pressure if it pushes some rivals out of its markets. Furthermore, it is trying to reduce the volume of bad loans it makes by using AI to rate would-be borrowers and by limiting loan amounts.

Moreover, its earnings multiple shows this recovery could take place. Currently, its P/E ratio is 49. While that is well above the S&P 500 average of 32, it is also a lower multiple than Amazon traded at during its years of faster revenue growth. Additionally, rising profits would lower its P/E ratio, which could serve as a catalyst to take the stock higher.

MercadoLibre's road to recovery

Ultimately, MercadoLibre stock should soar again if it can return to robust profit growth.

Admittedly, rising e-commerce competition and an increase in bad loans have reduced its net income.

The company believes more growth will mitigate the declining margins in its retail business. Also, it has employed mitigation strategies to reduce the number of non-performing loans. If successful, that could mean profits rise at rates more in proportion to revenue growth.

Assuming investors can wait for this process to play out, they will likely see outsize returns over the next five years from this consumer discretionary stock.

Will Healy has positions in MercadoLibre and Sea Limited. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Sea Limited. The Motley Fool has a disclosure policy.