Why Mercadolibre, Inc. Might Keep Pulling Back

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. 

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  • Report this Comment On November 19, 2013, at 7:46 AM, piggy60 wrote:

    While this article provides no real substance, I do agree with the premise and I've sold all my shares of ML at a handsome gain of about $35/share. I think the exchange rate issues are the biggest threat, and also the fact that Amazon is now in country. I still believe in the company and its hefty dividend, but the price point is too hot at 47x earnings. Let's see this baby get back to reality and I may jump back in at the $80-83 range. I don't think it will relapse to $75 unless there is an emotional sell off compounding the fundamentals (like we saw with Netflix). I don't ever try to time the market, but having bought and sold ML 3 times, I do look for trends. This stock tends to sell of abruptly, then climb back, then sell ... etc.

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