To say that MercadoLibre (MELI 1.73%) has started 2025 on a strong note would be a major understatement. We're just over four months into the year, and the Latin America commerce giant has already gained 42%.

MercadoLibre was already a large investment in my portfolio, but after this year's move, it is now my largest stock position of all. But despite this fact, I'm still tempted to buy more, even at the current share price.

Here's a rundown of why MercadoLibre has performed so well, what could take the company to the next level, and why I don't necessarily think MercadoLibre is an "expensive" stock.

Image source: Getty Images.

Two consecutive strong earnings reports

To be fair, MercadoLibre had fallen quite a bit in the latter months of 2024, as its third-quarter earnings report last year gave investors concerns about the company's profitability. So, it started 2024 significantly off its prior highs.

However, MercadoLibre has since posted two excellent earnings reports back to back, which has caused the stock to completely reverse course.

First, the company's fourth-quarter report (released in late February) showed fantastic revenue growth in the crucial holiday quarter and completely alleviated investors' concerns about its margins. Both the e-commerce and fintech sides of the business performed incredibly well.

The recently released first-quarter 2025 earnings results were even more encouraging. The e-commerce marketplace sold 28% more items than the same quarter last year, and on the fintech side, total payment volume (TPV) was 43% higher year over year. MercadoLibre's credit portfolio (credit cards, loans, etc.) grew by a staggering 75% to $7.8 billion.

On the bottom line, MercadoLibre's operating margin expanded by 70 basis points compared with the first quarter of 2024, and net margin increased by 40 basis points. Now, MercadoLibre did post slightly negative free cash flow for the quarter, but this was due to aggressive investment in fintech funding and the build-out of the logistics platform, two major drivers of growth.

Future growth catalysts

For starters, I don't think the core e-commerce marketplace and Mercado Pago payment platform are close to being mature businesses just yet. E-commerce and cashless payment adoption are still in the relatively early stages in some of the company's key markets.

However, there are some particularly exciting parts of the business that could help take MercadoLibre to the next level. Just to name a few:

• The credit portfolio is growing rapidly, but is still rather small compared to the opportunity. Credit cards in particular could be a big opportunity, as they make up just $3.3 billion of the credit portfolio today. In Brazil, the company's biggest market, credit card adoption rates have tripled since 2019 but are still rather low. Brazil has the 26th-highest credit card penetration rate in the world, with the majority of adults not having one. And it has the highest credit card adoption of MercadoLibre's markets.
• The MELI+ subscription business (similar to Amazon Prime) is still relatively young and was recently revamped to create a more affordable tier.
• Advertising is a massive opportunity to create high-margin revenue. MercadoLibre's ad revenue grew by 50% year over year in the first quarter, and the company just launched its Mercado Play app for smart TVs, which should greatly expand the available ad inventory.

Despite the massive upside movement, MercadoLibre could still be a great long-term investment from here and doesn't necessarily look expensive. In fact, with the company's profitability improvements, MercadoLibre trades for a significantly lower P/E ratio than it did a year ago.

Not only is the stock "cheaper" than it was a year ago, but key growth rates are accelerating. For example, total payment volume growth in the first quarter of 2024 was 35%, eight percentage points slower than it is now, plus profit margins were significantly narrower.

The bottom line is that it would be a mistake to consider MercadoLibre expensive just because it's near an all-time high. To the contrary, it looks like a significantly better value today in most ways than at most points in the past couple of years.