3 Growth Stocks Down 20% to Buy Right Now

MercadoLibre reported Q1 2026 revenue of $8.8 billion, up 49% year over year, though net income fell 16% to $417 million amid margin pressure and loan defaults. Chewy posted fiscal 2025 net sales of $12.6 billion, up 6%, with operating income surging 125%, while Shopify delivered Q1 2026 revenue of nearly $3.2 billion, up 34%, and 88% higher operating income. The article is broadly constructive on long-term fundamentals but notes valuation, AI-related concerns, and share-price weakness across all three stocks.

Analysis

The common thread is not “cheap growth” but re-rating optionality after multiple compression. MELI and SHOP still have credible long-run compounding paths, but the market is forcing them to prove that revenue scale can outrun operating friction: credit losses for MELI, AI inference cost and platform defensibility for SHOP. The second-order winner is not necessarily the obvious dominant platform, but the best monetization engine per incremental user — that favors businesses with pricing power, repeat purchase behavior, or embedded payments/fulfillment layers.

CHWY is the cleanest catalyst setup because it is transitioning from a narrative stock into an earnings stock. If management can keep expense growth below sales growth for another 2-3 quarters, the market will likely stop valuing it like a structurally challenged retailer and start valuing it like a recurring-demand subscription franchise. The risk is that pet spend remains resilient until it doesn’t; a modest consumer slowdown would hit discretionary basket expansion before it hits retention, so the stock could stay range-bound until the next guide-up cycle.

The contrarian miss is that AI is not just a threat to SHOP; it is also a margin lever if used to lower merchant acquisition and support costs. The market is likely underestimating how much of Shopify’s moat sits in workflow integration rather than software code, which means low-cost clones may be less disruptive than feared over a 12-24 month horizon. For MELI, the larger risk is that credit tightening plus competition compresses both take rate and loan growth simultaneously, turning a valuation “cheapness” story into an earnings-duration trap if defaults do not normalize.

Key Decisions for Investors

• Long CHWY vs short XRT for a 3-6 month window: better earnings leverage and improving margin trajectory should outperform generic retail if consumer demand remains stable; stop if fiscal 2026 guidance misses by >2 pts.
• Buy SHOP on pullbacks via 6-12 month call spreads rather than outright stock: the setup is a duration call on platform durability, with upside if the market re-rates forward earnings from the low-60s toward the mid-70s P/E.
• Hold MELI only as a capped-size core long, and hedge with a short basket of Latin consumer credit/commerce proxies if available: the main risk is simultaneous margin compression and higher loss reserves over the next 2-4 quarters.
• Add CHWY common on any post-earnings selloff below the current range: the stock looks more like a delayed multiple re-rating than a fading fundamental story, with upside if forward P/E compresses into the low-20s while growth stays high-single digits.
• Avoid chasing MELI at current multiples until credit losses inflect: if defaults do not improve in the next 1-2 quarters, valuation support becomes fragile despite top-line strength.