Investing

MELI Crushed But This Wall Street Expert Sees 58% Gain This Year

Chris MacDonald

Published: November 8, 2024 8:38 am

MercadoLibre (NASDAQ:MELI) is certainly among the e-commerce giants I pay closest attention to right now. The company is an absolute darling in this space, focusing on key Latin American economies as its growth engine. And generally-speaking, this company has hit on all cylinders when it comes to providing world-class growth in a region of the world that doesn’t get as much love as it deserves.

Unfortunately for investors, the company reported earnings on Thursday that missed expectations, despite posting revenue numbers that came ahead of where analyst projections stood heading into the call. This led to a steep 16% decline in the company’s stock price, and has some investors in the hyper-growth stock questioning whether this position still makes sense, given these results.

Let’s dive into what the company reported, and why this stock is selling off in the fashion it is today.

Key Points About This Article:

• MercadoLibre has been a winning stock, surging nearly 30% over the past year, despite a 16% decline on Thursday.
• Let’s dive into the company’s earnings report, and why the market appears to have turned on this e-commerce gem (though some analysts remain bullish).
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Earnings Disappoint

MercadoLibre’s Third Quarter earnings report showed extensive year-over-year revenue growth, with the company bringing in a total of $5.28 billion in sales compared to $3.76 billion for the same quarter the year prior. However, despite these sky-high revenue numbers, the bottom line was a different story. MercadoLibre bought in only $7.83 in earnings per share compared to consensus estimates of $10 per share, as the e-commerce giant battled higher capital expenditures for its shipping business and credit card originations business thought the quarter.

The question many investors and analysts who follow this stock have is whether these investments will amount to one-time events (and the company is kitchen sinking this quarter), or if these effects could be felt in future quarters. Judging by the market’s response to these results, it does appear many appear to be taking a more hawkish tone on the company.

Accelerating growth in MercadoLibre’s credit portfolio could be a negative for the company, if credit quality declines. And with global dynamics shifting a great deal in recent days, there’s certainly cause for concern. That said, some aren’t phased by these results.

Analysts Aren’t Phased

It turns out that some analysts aren’t phased on where MercadoLibre could be headed from here. In fact, on an overall basis, analysts generally hold a strong buy rating on the stock, with a price target of $2,440.83 on shares of MELI stock, representing more than ethanol 37% upside from Thursday’s closing price. The high water mark for where shares of MercadoLibre could be headed over the next year or 18 months stands at $2,800 per share, or upside of 58% from current levels.

With that kind of potential upside, it makes this daily decline easier to swallow for buy and hold investors in this name. Certainly, there’s plenty of growth potential on the horizon, even on the bottom line, if the company can streamline its operations and continue to provide revenue growth that’s eclipsing the 40% level. And at a forward price-earnings ratio of just 47-times, I’d say this growth is very reasonable, given the fact that the company’s PEG ratio sits at around 1 right now.

Things can change, and certainly the company’s recent results were a shock to the market. There’s a reason why the stock is down big today. But until Wall Street analysts begin to move away from this stock in a meaningful way, this is a name I think many investors may add to on today’s dip.

What to Make of Today’s Move

As suggested earlier, I think it’s too early to make too much of today’s earnings report. It’s one earnings report, and we’ll have to see if the company’s upcoming earnings reports reflect some of the same issues the company saw during this quarter. If this was indeed a one-off, many investors will likely kick themselves for failing to buy this dip. On the other hand, if valuations are set to come down across the board, perhaps this is the selling opportunity many asked for.

We’ll see. For now, I remain bullish on MercadoLibre over the long-run. This is a company that’s seen significant volatility in the past, thanks to its rather high valuation multiple. But as the company continues to grow into this multiple, I see less risk on the table for investors looking to put fresh capital to work, particularly after today’s decline.