MercadoLibre up 28% as Latin American ecommerce poised for growth

Uruguay-based e-commerce platform MercadoLibre Inc. (NASDAQ: MELI) is up 28% in November, reaching its best levels since November 2021. 

The MercadoLibre chart shows a November 14 cup-with-handle breakout above $1398.59. The stock has been in rally mode since then, and is currently extended 14% from its buy point, which means a pullback with moving-average support could offer the next buy opportunity. 

Wall Street has bullish expectations for this stock, eyeing earnings growth of 134% this year, to $22.36 per share. 

Next year, earnings are expected to rise by another 48%, to $33.13 a share.

Breaking Black Friday sales records

MercadoLibre stock rallied 4.15% in heavy volume after the company joined Shopify Inc. (NYSE: SHOP) in reporting record-breaking Black Friday sales. 

The company said gross sales grew 80% over the year-earlier period on Thursday, November 23 and Friday, November 24. 

The November performance marked an increase of 39% versus November of 2022. 

MercadoLibre cited other highlights, including: 

• The sale of electronics, especially cell phones, notebooks and TVs, grew 140%. 
• The total average number of items sold per day is 1.8 million, but on November 23 alone, this volume peaked at 2.8 million items surpassing last year's Black Friday even before Friday. 
• To reach that record, Mercado Libre invested in logistics, hiring 7,200 temporary employees and maintaining fast delivery times even at the sales peak.

“We are also succeeding in our objective of sustaining growth records without sacrificing the company's margins”, said Fernando Yunes, senior vice president and leader of Mercado Libre in Brazil, in a statement.

Analysts' bullish view

MarketBeat’s MercadoLibre analyst forecasts show a consensus view of “moderate buy” with a price target of $1,706.07, an upside of 7.36%. 

That’s not a bad price target, but it indicates the potential for the stock to pull back before it resumes its rally. The fast uptrend recently has put the stock 5.8% above its 10-day moving average.

The stock has other solid attributes, including a 29% return on equity, indicating effective use of shareholder equity to generate profits. 

There are some reasons to use caution, however. The stock’s price-to-earnings ratio is 82, a particularly frothy level. 

Investors willing to pay up

A high P/E isn’t necessarily a bad thing. It indicates that investors are willing to pay a premium for a company's future earnings, suggesting high growth expectations.

MercadoLibre is tracked with other tech stocks specializing in online retail. Industry peers include Amazon.com (NASDAQ: AMZN) and Alibaba Group Holding Ltd. (NYSE: BABA). 

Amazon’s price performance has been excellent since late October, and MercadoLibre is outpacing Amazon by a small margin. 

The Alibaba chart shows the stock has been a poor performer this year, and is down significantly since its October 2020 high. 

MercadoLibre’s business model differs from Amazon’s, in that it operates not only an online marketplace, but also a financing unit and a digital advertising arm. 

Fintech unit expanding

The company has been expanding its credit and payment services. Its  Mercado Pago fintech unit operates a digital wallet service that’s popular with its Latin American customers. It also allows transactions outside of the MercadoLibre platform.  

Overall, Latin American large-cap stocks have performed well throughout this year, posting the same August through October declines as U.S. stocks. 

Analysts have been bullish on Latin America this year. According to a July report from researcher Americas Market Intelligence, the region’s e-commerce business is expected to see 22% growth in volume between 2023 and 2026, valued at more than $700 billion.

That suggests that digital payments will increase alongside purchases. In addition, the Latin American digital advertising market is growing at a rapid pace.

Stock split in the cards?

With a stock price in the quadruple digits, it wouldn’t be surprising to see a split in the not-so-distant future. 

A high-priced stock may split to make shares more affordable for a broader range of investors. By reducing the stock price and increasing the number of shares outstanding, a stock split can improve its liquidity and attract a larger investor base without harming its overall market value.

Source MarketBeat