If MercadoLibre Is Already Selling Stock, Should You Buy? (MELI)

MercadoLibre (NASDAQ: MELI) filed to sell up to $292,140,000 in common stock after the close of trading on Friday via JPMorgan and Merrill Lynch.  The problem isn’t that this will just be dilutive to existing shareholders, it is that insiders are also selling shares.  So there is a fear that this might be a "cashing-out" by management.

Some of the proceeds will be for the company: "We intend to use the net proceeds of this offering to fund future selective acquisitions of or investments in businesses, technologies or products that are complementary to our business and for general corporate purposes."

This one was recently given the green light by Jim Cramer and it rallied sharply before this last pullback.   The company provides a platform for buyers and sellers to conduct business in an online trading environment that fosters the development of a large and growing e-commerce platform in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, Venezuela, Costa Rica, the Dominican Republic, and Panama.

Shares have only been public for less than half of a year and this was at $80 just last month.  MercadoLibre’s stock closed at $54.06 on Friday.  In pre-market trading today, shares are trading down over 12% at $46.25 and the 52-week trading range is $21.00 to $81.17.  If the company is already tapping the financial markets less than 6-months of coming public, should new holders be rushing to buy when the company and insider or institutional-backer shareholders are selling?

Jon C. Ogg
January 28, 2008