A Once-in-a-Decade Opportunity: 1 Supercharged Growth Stock to Buy After a Recent 10% Pullback

Shares of Latin American e-commerce and fintech behemoth MercadoLibre (NASDAQ: MELI) are up over 6,560% since the company's initial public offering (IPO) in 2007. Had an investor bought $15,000 worth of MercadoLibre stock at its IPO, it would now be worth $1 million -- less than two decades later.

Even after this incredible run, however, I have been waiting for a chance to add to my MercadoLibre position, as I believe the company's best days are still ahead of it. The company recently reported solid earnings, but the stock still dropped 10%, potentially providing an excellent opportunity to continue adding to my MercadoLibre position at a discount.

Here are four reasons why the company looks like a once-in-a-decade opportunity today.

1. Growing alongside the Latin American e-commerce surge

MercadoLibre has grown its revenue 33-fold in the last decade alone. Yet numerous megatrends should continue working in the company's favor over the next decade (and beyond).

Perhaps the most significant tailwind is that the e-commerce penetration rate in Latin America currently lags behind the United States, United Kingdom, and China by roughly 10 years.

Image Source: MercadoLibre Investor Presentation.

Partially thanks to this low penetration rate, the $150 billion Latin American (LatAm) e-commerce market is projected to grow by 50% over the next four or five years. MercadoLibre believes it will capture more than 50% of this incremental growth, thanks to its top-dog status and first-mover advantage in the LatAm e-commerce niche.

I'd even argue that this 50% growth over the next four or five years could prove to be conservative, considering the U.S. has seen its e-commerce sales grow by roughly 14% from 2014 to 2023.

Building five new fulfillment centers in Brazil and one in Mexico -- which weighed on profitability and helped spur the market's adverse reaction -- the company favors trading short-term profits for long-term cash flows with its logistical investments.

Image source: Getty Images.

2. Expanding its geographic footprint

LatAm's e-commerce growth prospects alone make MercadoLibre an exciting stock to consider. Nevertheless, a massive opportunity remains due to the fact that 96% of its revenue comes from just three countries: Brazil, Argentina, and Mexico.

To highlight the potential that exists outside of these three countries, consider that Chile, Colombia, Peru, and Ecuador have a combined gross domestic product that is similar to Mexico's. However, these four countries equal less than 5% of MercadoLibre's sales, while Mexico alone accounts for around 25%.

Senior Vice President of Strategy Leandro Cuccioli spoke to this potential recently, explaining on the company's investor relations podcast, "In some of these countries, the penetration of e-commerce is still in the single digits ... it's like a hidden gem." Cuccioli went on to admit that it may take time to allocate additional resources to these regions as the company can't "do everything at the same time."

Still, the potential is clear for patient investors willing to think decades ahead.

3. A robust and improving return on invested capital

The lengthy growth runway ahead of MercadoLibre is undeniably promising on its own merit. However, the company's ability to generate outsize profits from its invested capital is what could make it one of the biggest multibaggers of our time.

Since 2020, the company has gradually morphed from a mere growth stock into a true compounder, thanks to its rising return on invested capital (ROIC).

MELI Return on Invested Capital data by YCharts

To put this 18% ROIC in context, if MercadoLibre were in the S&P 500, its mark would rank in the top 20% of companies in the index. This combination of a rising ROIC and its top-quintile ranking has historically proven to be an indicator of outperformance for stocks, as this article suggests.

As MercadoLibre continues growing its high-margin ads business while reaching higher efficiencies by scaling into its massive logistical network, look for this high ROIC to persist.

4. MercadoLibre's once-in-a-decade valuation

Despite the company's history of share price appreciation, its remaining growth potential, and high ROIC, MercadoLibre appears to be near a once-in-a-decade valuation. The company currently trades with a price-to-sales (P/S) ratio of 5.3, which is less than half of its historical average.

MELI PS Ratio data by YCharts

Similarly, MercadoLibre's 1.5% earnings yield (the inverse of a price-to-earnings ratio, so higher is cheaper) is at its highest consistent marks since 2017.

This reasonable valuation looks all the more enticing, considering that the company's monthly active buyer growth reaccelerated to 21% in the third quarter, which is its highest level since 2020. Similarly, fintech monthly active users and companywide revenue grew by 35% each in Q3.

Thanks to these growth rates, the strong underlying megatrends that support their likelihood to continue, and the company's top-tier ROIC, MercadoLibre looks like a once-in-a-decade opportunity at today's price.

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Josh Kohn-Lindquist has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.