Investors more bullish on MercadoLibre (NASDAQ:MELI) this week as stock rises 7.8%, despite earnings trending downwards over past five years
It hasn't been the best quarter for MercadoLibre, Inc. (NASDAQ:MELI) shareholders, since the share price has fallen 21% in that time. But that does not change the realty that the stock's performance has been terrific, over five years. In that time, the share price has soared some 698% higher! Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. Anyone who held for that rewarding ride would probably be keen to talk about it.
Since it's been a strong week for MercadoLibre shareholders, let's have a look at trend of the longer term fundamentals.
View our latest analysis for MercadoLibre
We don't think that MercadoLibre's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last 5 years MercadoLibre saw its revenue grow at 40% per year. That's well above most pre-profit companies. Fortunately, the market has not missed this, and has pushed the share price up by 52% per year in that time. Despite the strong run, top performers like MercadoLibre have been known to go on winning for decades. On the face of it, this looks lke a good opportunity, although we note sentiment seems very positive already.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on MercadoLibre
A Different Perspective
While the broader market gained around 21% in the last year, MercadoLibre shareholders lost 23%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 52% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for MercadoLibre you should be aware of, and 1 of them is a bit concerning.
MercadoLibre is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
