MercadoLibre: "Latin American eBay"

10/04/2016 10:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

This featured stock runs an online e-commerce marketplace where sellers can offer all kinds of merchandise and be supported by a comprehensive suite of services, explains Mike Cintolo, editor of Cabot Top Ten Trader.

MercadoLibre (MELI) offers auctions and online shops, and a payment service that can automatically convert currencies across its Latin American core markets.

The company — similar to the well-known eBay (EBAY) — also offers payments for outside transactions (MercadoPago), a shipping service (Mercado Envios) and a classified advertising program.

If that seems a lot like eBay’s menu of services, that’s not a coincidence: eBay owns about an 18% stake in MercadoLibre and has donated lots of expertise.

MercadoLibre has enjoyed many years of double-digit percentage revenue growth, but the 29% bump in the company’s latest quarter is the strongest in many years, as is the 68% growth in earnings per share.

It’s worth noting that this strong growth has come in spite of the economic and political difficulties afflicting Brazil, which is the company’s biggest source of revenue. Earnings are forecast to dip by 6% in 2016, but analysts see 30% EPS growth in 2017.

MercadoLibre’s growth is a function of the rapid build-out of the cellular network in Latin America that increases the number of consumers with access to e-commerce. A small dividend (annual yield is 0.3%) sweetens the deal a bit.

Technically, MELI gyrated up and down from 2013 to early 2016, but the rally that began after the February market bottom has kicked MELI into decisive new-high territory.

The weakness in the broad market has pulled MELI down by 10 points from its September 6 high, but the stock is still well above its 25-day moving average.

MELI looks like a good buy under $178, with a loose defensive stop at its 50-day moving average, now at $161.

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By Mike Cintolo, Editor of Cabot Top Ten Trader

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