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We Might See A Profit From MercadoLibre, Inc. (NASDAQ:MELI) Soon

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Simply Wall St
·3 min read
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We feel now is a pretty good time to analyse MercadoLibre, Inc.'s (NASDAQ:MELI) business as it appears the company may be on the cusp of a considerable accomplishment. MercadoLibre, Inc. operates online commerce platforms in Latin America. On 31 December 2020, the US$75b market-cap company posted a loss of US$3.9m for its most recent financial year. As path to profitability is the topic on MercadoLibre's investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

Check out our latest analysis for MercadoLibre

According to the 24 industry analysts covering MercadoLibre, the consensus is that breakeven is near. They expect the company to post a final loss in 2020, before turning a profit of US$79m in 2021. The company is therefore projected to breakeven around a year from now or less! At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 46%, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

earnings-per-share-growth
earnings-per-share-growth

Given this is a high-level overview, we won’t go into details of MercadoLibre's upcoming projects, though, take into account that by and large a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before we wrap up, there’s one issue worth mentioning. MercadoLibre currently has a relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in MercadoLibre's case is 84%. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on MercadoLibre, so if you are interested in understanding the company at a deeper level, take a look at MercadoLibre's company page on Simply Wall St. We've also put together a list of pertinent factors you should look at:

  1. Valuation: What is MercadoLibre worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether MercadoLibre is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on MercadoLibre’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.