After a breathtaking run in the last two years, several e-commerce stocks are trading at significantly lower valuations. The COVID-19 pandemic acted as a massive tailwind for most technology companies. However, the reopening of economies coupled with higher inflation and rising inflation rates are expected to negatively impact the revenue and profit margins of companies across sectors.

Shares of Latin America-based MercadoLibre (NASDAQ: MELI) rose from $452 in March 2020 to $1,970 in September 2021. MELI stock is now trading at $677, valuing the company at $34 billion by market cap. Let's see if MercadoLibre can stage a comeback by the end of 2022.

What does MercadoLibre do?

MercadoLibre is the largest online commerce and payments platform in Latin America. It has a presence in 18 countries, including Brazil, Mexico, Chile, and Argentina. The company claims it's an e-commerce market leader in each of these major countries based on metrics such as unique visitors and page views.

MercadoLibre provides its users with online commerce and payments tools that allow them to gain traction in the Latin American market, which houses 650 million people.

While e-commerce remains the key driver of revenue growth, MercadoLibre continues to expand its suite of products and services. Over the years, it launched a digital payments platform called Mercado Pago, a commercial and consumer lending business known as Mercado Credito, and a logistics solution -- Mercado Envios.

In Q1 of 2022, MercadoLibre reported a gross merchandise volume of $7.7 billion, an increase of 32% year-over-year. It ended Q1 with 40 million unique buyers as total payment volume surpassed $25 billion for the first time ever in a single quarter.

MercadoLibre confirmed it had close to 36 million unique active users in fintech on the back of higher engagement in wallet payments and the growth in credit users. At the end of Q1, its credit portfolio stood at $2.3 billion, allowing the company to report record sales of $2.2 billion in the quarter.

Is MELI stock a buy?

In Q1 of 2022, MercadoLibre increased sales by 63% year-over-year, which was lower than its growth of 158% reported in the year-ago quarter. Despite the deceleration in the top line, the company is on track to increase sales by 47% year-over-year to $10.4 billion in 2022 and by 30% to $13.5 billion in 2023.

MercadoLibre also aims to grow profitability over time and ended Q1 with an operating income of $139 million, indicating a margin of 6.2%. Its adjusted earnings in the March quarter stood at $1.30 per share, compared to a loss of $0.68 per share in the prior-year period.

Despite stellar revenue growth, MercadoLibre has reported earnings below consensus estimates in the last two quarters. Now, Wall Street expects adjusted earnings to more than triple to $7.2 per share and increase by another 65% to $11.92 per share in 2023.

MELI stock is valued at a price to 2022 sales multiple of 3x and a forward price to earnings multiple of 94x, which is quite steep. However, analysts expect MercadoLibre to expand adjusted earnings at an annual rate of 123% in the next five years.

MercadoLibre's price-to-sales multiple is the lowest in the last five years as the stock is down 65% from all-time highs, making it a top contrarian bet. Further, the company provides investors exposure to one of the fastest-growing emerging markets globally. MELI stock is trading at a discount of 100% compared to consensus price target estimates.