Boasting A 36% Return On Equity, Is MercadoLibre, Inc. (NASDAQ:MELI) A Top Quality Stock?

Simply Wall St.12-20 19:01

Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). To keep the ...

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(NASDAQ:MELI) A Top Quality Stock?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-12-20 19:01 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/boasting-36-return-equity-mercadolibre-110104452.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Many investors are still learning about the various metrics that can be useful when analysing a stock. This article is for those who would like to learn about Return On Equity (ROE). To keep the ...</p>\n\n<a href=\"https://finance.yahoo.com/news/boasting-36-return-equity-mercadolibre-110104452.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0786609619.USD","symbol_name":"高盛全球千禧一代股票组合Acc","start_time":0,"source_url":"https://finance.yahoo.com/news/boasting-36-return-equity-mercadolibre-110104452.html","article_id":"2492578419","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/D5RQ4IawidDVtnEYQELG0g--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/bba80cef4667ee8433810d7fbee032a7"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2492578419","pubTimestamp":1734692464,"columns":[],"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Many investors are still learning about the various metrics that can be useful when analysing a stock. 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This article is for those who would like to learn about Return On Equity (ROE). To keep the lesson grounded in practicality, we'll use ROE to better understand MercadoLibre, Inc. (NASDAQ:MELI). \n ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital. \n See our latest analysis for MercadoLibre \n How To Calculate Return On Equity? \n ROE can be calculated by using the formula: \n Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity \nSo, based on the above formula, the ROE for MercadoLibre is:\n36% = US$1.4b ÷ US$4.0b (Based on the trailing twelve months to September 2024).\n The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.36 in profit. \n Does MercadoLibre Have A Good Return On Equity? \n By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. As is clear from the image below, MercadoLibre has a better ROE than the average (23%) in the Multiline Retail industry. \n\n\n\n  NasdaqGS:MELI Return on Equity December 20th 2024\n \n\n That's clearly a positive. Bear in mind, a high ROE doesn't always mean superior financial performance. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk. \n Why You Should Consider Debt When Looking At ROE \n Virtually all companies need money to invest in the business, to grow profits. The cash for investment can come from prior year profits (retained earnings), issuing new shares, or borrowing. In the first and second cases, the ROE will reflect this use of cash for investment in the business. In the latter case, the use of debt will improve the returns, but will not change the equity. In this manner the use of debt will boost ROE, even though the core economics of the business stay the same. \n Combining MercadoLibre's Debt And Its 36% Return On Equity \n It's worth noting the high use of debt by MercadoLibre, leading to its debt to equity ratio of 1.32. Its ROE is pretty impressive but, it would have probably been lower without the use of debt. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time. \n Conclusion \n Return on equity is one way we can compare its business quality of different companies. A company that can achieve a high return on equity without debt could be considered a high quality business. All else being equal, a higher ROE is better. \n But when a business is high quality, the market often bids it up to a price that reflects this. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So you might want to check this FREE visualization of analyst forecasts for the company. \n Of course MercadoLibre may not be the best stock to buy. So you may wish to see this free collection of other companies that have high ROE and low debt. \nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2492578419"}