While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Mercadolibre, Inc. (NASDAQ: MELI ) slipped 1% today after Morgan Stanley downgraded the Latin American online auction operator from "equal-weight" to "underweight."
So what: Along with the downgrade, analyst Michel Morin planted a $75 price target on the stock, representing about 34% worth of downside to Friday's close. While contrarian investors might be attracted to the stock's recent slide, Morin believes that Mercado's valuation remains on the lofty side.
Now what: According the Morgan Stanley, Mr. Market's growth expectations for Mercado are far too optimistic. "Valuation does not adequately reflect growing macro risks in our view," noted Morgan. "Solid execution and secular tailwinds may allow MELI to grow into its valuation over time, but the risk-reward looks poor, despite the recent pullback." With Mercado shares now off more than 20% from their 52-week highs, however, a good portion of those macro risks may already be baked into the price.
More compelling growth picks
Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.