Why MercadoLibre Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of South American online auction operator MercadoLibre (Nasdaq: MELI  ) plunged 10% today after its quarterly results missed Wall Street expectations.

So what: MercadoLibre's third quarter didn't miss estimates by much -- EPS of $0.59 on revenue of $97.3 million versus the consensus of $0.60 and $98.1 million -- but Wall Street is obviously taking the results as a sign of slowing growth going forward. Operating margins for the quarter even fell to 34.7% from 36.7% in the year-ago period, reinforcing concerns over rising costs and intensifying competition in the space.

Now what: I'd look into this pullback as yet another long-term buying opportunity. "[T]oday we are in a much better position to continue to innovate for our customers while we remain focused on building the most complete e-commerce ecosystem in the region, which we believe is still only a fraction of what it will become," CEO Marcos Galperin reassured investors. Although it's clearly going through a rough patch right now, MercadoLibre's leadership position, wide competitive moat (thanks to strong network effects), and rock-solid balance sheet still make it a particularly intriguing play on Latin American growth.

Interested in more info on MercadoLibre? Add it to your watchlist.

Fool contributor Brian Pacampara has no positions in the stocks mentioned above. The Motley Fool owns shares of MercadoLibre. Motley Fool newsletter services recommend MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/20/2016 4:00 PM
MELI $171.05 Up +1.62 +0.96%
MercadoLibre CAPS Rating: *****