MercadoLibre, Inc.

MercadoLibre, Inc. (NASDAQ: MELI) is Latin America's largest e-commerce marketplace, with over 140 million active customers and 1 million active sellers spread across 18 countries. Shipping solutions, payment and financing operations, advertisements, classifieds, and a comprehensive e-commerce solution round out the company's portfolio. Final value fees, advertising royalties, payment processing, insertion fees, subscription fees, and interest revenues from consumer and small-business financing contribute to the company's bottom line.

Key Financial Highlights:

• Technical Weakness: On Daily price chart, MELI shares are hovering in a long-term bearish zone, with stock traded well its crucial long-term as well as short-term support levels of 200-day and 50-day SMA, implies a long-term bearishness in the stock.

Technical Chart (as on June 21, 2022, at 10:52 AM PDT. Source: REFINITIV, Analysis by Kalkine Group

• Stellar Financial Performance in Q1FY22: The company had achieved record net revenues in the Q1FY22, with USD 2.2 billion dollars, at a growth rate of 63% on a USD basis and of over 67% on an FX-neutral basis. Along with the sustained transaction growth in gross merchandise volume and total payment volume in the first quarter driving higher revenues. Also, the company had significant year-over-year improvement in gross profit margins, reaching 47.7% with a gross profit record of almost USD 1.1 billion dollars. And finally, the company delivered a net income of USD 65 million dollars, at a 2.9% margin, a significant improvement compared to the net loss incurred last year.
• Significantly Overvalued despite 66% Correction from the Peak: From the valuation standpoint, the company is trading at hefty valuation compared to its peers. Further, it seems that the stellar financial performance of the company in quarter just gone is overly priced in, which making MELI shares relatively expensive at the current levels.

Relative valuation of MELI vs. Industry Peers’

Source: REFINITIV, Analysis by Kalkine Group

Stock Recommendation

The company reported stellar performance in the quarter just gone by. However, despite strong performance the company is commanding a valuation which is significantly higher when compared to the peers, which indicates that the goodness of the company is already priced in. Moreover, there is long-term bearish trend in the stock, and stock is trading below the crucial long-term and short-term support levels of 200-day and 50-day SMAs, and hovering below the downward sloping trendline as well. And leading momentum indicator 14-day RSI hovering in a neutral zone with bearish bias at 41.2.  Hence, we recommend a “Watch” rating on the stock at the current market price of USD 662.51, as of June 21, 2022, at 12:37 PM PDT. We can reevaluate the stock below S1 highlighted in the technical summary table.

MELI’s 1-Year Technical Price Chart (as of June 21, 2022, at 12:32 PM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Note 3: The report publishing date is as per the Pacific Time Zone.

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