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Mercadolibre Stock: Strong Tailwinds Ahead
Stock Analysis & Ideas

Mercadolibre Stock: Strong Tailwinds Ahead

From a price-performance point of view, 2021 was not good for the shareholders of Argentine Internet retailer Mercadolibre (NASDAQ: MELI), as its shares fell by more than 15% and significantly underperformed the overall market.

Like other online retailers and stay-at-home stocks, Mercadolibre gave way to other stocks, such as finance, materials and manufacturing. Most restrictions were eased last year as the COVID-19 crisis improved globally, allowing people to resume their normal lives and reducing the time spent on online activities.

The year before (the COVID-19 pandemic year), online retailers and stay-at-home stocks rose rapidly due to increased engagement in online activity as people were forced to stay at home longer as a measure against the coronavirus.

Both the fundamentals of the company and the industry remain solid. I think the stock is poised to make a strong comeback. I am therefore bullish on this stock.

Based in Buenos Aires, as the largest provider of online trading services in Latin America, Mercadolibre allows users of its marketplace platform to buy and sell products and services across most of the continent.

These users are not only individuals but also companies. Mercadolibre also offers financial technology solutions to facilitate transactions between users.

Q3 2021 Earnings

In the third quarter of 2021, MELI earnings were robust.

The net profit was $1.92 per share, beating the consensus estimate by $0.63 on aggregate revenues of $1.86 billion.

Year-over-year, revenue grew nearly 62% as the following key business metrics outperformed. Gross trading volume grew nearly 24% year-over- year to $7.3 billion, while payment transactions grew nearly 55% year-over- year to $865.7 million.

Gross profit margin also increased 40 basis points to 43.4% of total sales in the third quarter of 2021, compared to 43% of total sales in the third quarter of 2020.

Growing E-Commerce Market 

Mercadolibre is poised to continue to capitalize on its position as a leader in the e-commerce sector in Latin America. There are other competitors in the market, but no one has ever been able to match the Argentinian Internet retailer’s figures on turnover and payment transactions.

Online sales in Latin America are expected to grow very rapidly in the coming years, from $68 billion in 2020 to no less than $160 billion in 2025, according to Statista.

The increase in COVID-19 infections due to the Omicron variant could significantly boost online sales as lockdowns and other restrictions force Latin American consumers to stay at home longer than usual, giving them more time to spend on online purchases and payments.

From a strategic point of view, the acquisition in mid-December 2021 of Redelcom, a Chilean payment terminal provider, is a smart move as it enriches Mercadolibre’s business position in the Chilean market (the fifth largest in the region).

Here, the Falabella Group is a fierce competitor with its brick-and-mortar and online discount stores.

Wall Street’s Take

In the past three months, seven Wall Street analysts have issued a 12-month price target for MELI. The company has a Strong Buy consensus rating, based on seven Buys, zero Holds and zero Sell ratings.

The average Mercadolibre price target is $2,085.71, implying 68% upside potential.

Summary

Thanks to its leading market share in South American e-commerce, Mercadolibre will be able to take advantage of the strongest tailwind the market can create.

The share price is strongly poised to show the recovery that shareholders expect and recapture the TipRanks Top Stocks group.

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Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >


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