This monster growth stock is up nearly 300% in 5 years. Here’s why it’s the largest stock position in my portfolio right now.

The past five years have been chaotic, with a global pandemic, presidential elections, inflation, rapid interest rate changes, bank failures and more. Despite this level of economic disruption, S&P 500 increased by almost 90%. It’s a good run, all things considered.

As good as these market returns were, MercadoLibre (MELI -0.27%) the stock left the S&P 500 completely in the dust. Shares of this Latin American business have risen more than 280% over the past five years.

MercadoLibre is the largest position in my personal Roth IRA, and I’ll explain why in a moment. But first, I want to provide some context to prevent potential misunderstandings.

My Roth IRA is less than five years old. I previously had a retirement account with my employer. We had no control over how that account was invested. But when I changed jobs, I switched accounts and suddenly had investable cash and the ability to make decisions.

I quickly diversified the account to over 20 stock positions because diversification is important — it’s a basic Motley Fool investing principle. In early 2022, I purchased shares of MercadoLibre for the first time, dollar cost averaging my new position until it was worth about 5% of the Roth IRA value.

It wasn’t the largest position at the time, but MercadoLibre stock certainly holds that title now. It is worth much more than 5% of the total value of the portfolio. However, there are three reasons why I’m not looking to sell any MercadoLibre stock anytime soon.

1. MercadoLibre is poised for growth

Investors can make money in low-growth industries. But it’s much easier to find winning investments by focusing on the leaders of growing markets.

In MercadoLibre’s case, the two main business segments are its e-commerce marketplace and its financial technology (fintech) services. The competition would be much fiercer in North America or Europe. But in its native Latin America, MercadoLibre enjoys a leadership position thanks to its early entry into the space.

In terms of market maturity, the Latin American markets for e-commerce and digital financial products are younger than those North American markets, generally speaking. This partly explains why MercadoLibre’s growth has been stellar and why it could remain strong for the foreseeable future.

In terms of growth rate, the chart below shows that MercadoLibre’s slowest growth rate over the past five years was 36% — most companies rarely have a single year of such good growth. And MercadoLibre has averaged nearly 60% growth over that period. At this rate, the business will quadruple every three years, which is simply amazing.

MELI revenue data (quarterly annualized growth) by YCharts.

I’m not necessarily saying that MercadoLibre will maintain this current pace. But its growth still appears to have plenty of runway, which is the main reason I’m happy MercadoLibre stock is the largest position in my Roth IRA.

2. MercadoLibre is ready for profits

Many years ago, MercadoLibre decided to sacrifice its good profit margins to invest in shipping and logistics. In its geographies, logistics was the challenge that few companies were solving. It wasn’t quick, cheap or easy. But today, MercadoLibre has impressive capabilities.

For perspective, more than half of orders on MercadoLibre’s e-commerce platform are delivered the same or next day, a rare level of service in the company’s key markets.

Its strength in logistics supports the long-term growth of e-commerce marketplace MercadoLibre. Not only are more third-party sellers onboarding (fueling a high-margin revenue stream), but growing the platform also allows for increased advertising revenue. The company had about $250 million in ad revenue in the second quarter of 2024, which was up more than 50% year-over-year.

Moreover, MercadoLibre’s strength in logistics gives it a competitive advantage, and companies with strong advantages often find ways to improve their margins over time.

Over the past few years, MercadoLibre’s revenue growth has been remarkable. But as the chart below shows, growth for profit metrics like operating income and free cash flow was even better.

MELI Revenue (TTM) data by YCharts.

I would expect more gains for MercadoLibre stock if its profits continue to grow as they are now.

3. Letting the winners run is a winning strategy

A principle for investing the Motley Fool way is to have a diverse portfolio. Another principle is to let a winning investment continue to run rather than selling it prematurely.

Let’s face it, a diverse portfolio is going to be filled with a lot of bad investments — mine certainly is. This can drag down overall returns over the long term. However, a single winning stock can do the hard work. But this can only happen if it is given enough time to grow.

There are legitimate reasons to sell a stock. But MercadoLibre’s business is thriving and appears to have a long run. For these reasons, I will keep my top stock and allow it to lift my portfolio as a whole.