MercadoLibre's Earnings Soar: Robust Growth Story in the Making

Key Points

• Uruguay-based MercadoLibre boasts a bullish chart and stellar earnings estimates.  Analysts expect earnings to more than double this year. 
• MercadoLibre's Q2 fintech revenue increased by 24%.
• The company's three-year revenue growth rate is 63%.
• Several top analysts recently raised their price targets on the stock.

There’s an investing phenomenon called “home country bias,” which refers to the tendency of investors to disproportionately favor assets from their own country, despite the potential benefits of diversifying with overseas stocks.

U.S. investors who only look inward are missing opportunities such as Uruguay-based MercadoLibre Inc. NASDAQ: MELI, which boasts a bullish chart and stellar earnings estimates. 

MercadoLibre is a prominent e-commerce and technology company serving multiple countries in Latin America. But it’s not top of mind for U.S. investors, in the way Amazon.com, Inc. NASDAQ: AMZN and eBay Inc. NASDAQ: EBAY are. 

Institutional investors are certainly aware of MercadoLibre, though. The stock is part of the Nasdaq 100 index, consisting of stocks issued by the 100 largest non-financial companies listed on the Nasdaq.

Ark Fintech Fund Among Owners

MercadoLibre is a holding within Cathie Wood’s ARK Fintech Innovation ETF NYSEARCA: ARKF, albeit a relatively small weighting, at 4.73%, although it’s the eighth most heavily weighted stock in the portfolio. 

Why would an e-commerce marketplace stock be a component of a fintech innovation fund? It’s because MercadoLibre's fintech division, MercadoPago, offers digital payment solutions, online financial services, and credit options to facilitate transactions. 

In the second quarter, fintech revenue was $1.479, up 24% from the year-earlier quarter. 

The Ark Fintech Innovation ETF bought 2,154 shares on July 31, ahead of the company’s second-quarter earnings report on August 3. 

Gapped Up After Earnings

You can look at MarketBeat’s MercadoLibre chart and see the uptick on that day. After the company reported earnings, the stock gapped up and finished 13.59% higher in nearly triple the average trading volume. 

The stock rallied to a high of $1388.39 on August 10 before pulling back on August 11, which was when the Ark Fintech Innovation ETF sold 1,051 shares. 

Now, that amount of selling was only a drop in the bucket compared to the total of 616,300 shares that changed hands on that day, and Ark has an extremely active approach to its trading. That means one ETF unloading a few shares, while still holding more than $44.6 million in shares, as of August 11. 

A long-term holder of MercadoLibre shares is the PGIM Jennison Global Opportunities Fund, which counts the stock among its top 10 holdings. Mutual funds, which are prominent offerings in many 401(k) plans, are typically long-term holders. Analysts do thorough research into stocks before adding them, and they tend to accumulate shares over weeks, months, and even years.

Analysts See Triple-Digit Earnings Growth 

For MercadoLibre, the potential seems large, as online retailing in Latin America has not yet reached the levels of acceptance it’s seen in North America. But market share is growing fast: Analysts expect the company’s earnings to increase by 113% this year, to $20.43 per share, and by another 40% next year, to $28.63 a share. 

Those aren’t pie-in-the-sky projections. The company has already experienced rapid earnings and revenue growth. Earnings increased by 473% in 2022, thanks to double- and triple-digit increases in the past six quarters. 

MercadoLibre’s three-year revenue growth rate is 63%, due to a history of double-digit sales increases. 

MarketBeat’s MercadoLibre analyst ratings show a consensus view of “moderate buy,” with a price target of $1,625.91, an upside of 22.25%. After the most recent earnings report, four analysts at major investment banks Citigroup, JPMorgan Chase, Goldman Sachs, and Barclays all boosted their price targets.

The stature of investment banks that follow a company says something. The big investment banks offer research on a company if they believe there is business there, such as mergers and acquisitions, or issuing debt or equity. When major investment banks follow a company, that indicates credibility, growth potential, and investor interest. 

Cleared Cup-Shaped Base 

If you go back to the MercadoLibre chart, you can see that it cleared a cup-shaped base on August 7, then retreated below its buy point of $1365.74, before rallying again on August 10. 

The stock is currently actionable, as it’s trading just 2.6% below its buy point. If it continues to fall, investors should consider waiting until its uptrend resumes before purchasing shares. Also, with the broad market under some selling pressure, MercadoLibre, along with all fundamentally sound stocks, may get swept up in some algorithm-driven or sentiment-driven selling.