Shares of MercadoLibre (MELI +1.36%) hit another all-time high on Tuesday, and one Wall Street pro thinks it's time to cash out of one of this year's hottest stocks. Citi analyst Paola Mello is downgrading shares of the leading Latin American online marketplace operator, lowering her rating on the stock from neutral to sell.
Mello feels that competition will intensify in Brazil, Mexico, and Chile as MercadoLibre faces off against brick-and-mortar chains that are putting some serious muscle behind their rival marketplace platforms. Free shipping promotions may have helped MercadoLibre deliver stellar top-line growth in recent quarters, but Mello feels that the stock's gains just aren't sustainable. She is slashing her price target from $260 to $230.
Image source: MercadoLibre.
Two for the road
Mello's downgrade comes a week after Michael Olson at Piper Jaffray went the other way. He boosted his price target from $268 to $330, sticking to his overweight rating on the shares. Within days we've seen two MercadoLibre experts go from being $8 apart on their price goals to a whopping $100 divide.
Analysts aren't expected to agree on things. It's why there's more than one Wall Street pro watching any particular stock. Mello and Olson certainly don't agree here. Olson even argued that the stock was relatively expensive at the time of last week's update, but it's worth noting that his call came when the stock was still trading below $300. It hit his $330 price target on Tuesday.
MercadoLibre stock is on fire. It has now finished higher in 9 of the past 10 trading days, soaring 111% this year through Tuesday's close. There are some good reasons for the monster advance, and we saw that in action last month when MercadoLibre posted another blowout quarter. Revenue has soared by 59% or better in each of this year's first three quarters. You have to go back eight years to find the last time that it was growing this quickly in even one single quarter, according to data provided by S&P Global Market Intelligence.
The bearish Mello may be correct in concluding that there's a price to pay for the free shipping promotion that has lit a rocket under transactions growth, but Olson also felt that way earlier this year. He lowered his price target from $287 to $268 back in October on concerns about what increased marketing costs behind the free shipping push would do to MercadoLibre's bottom line. He changed his tune last week, and it's been the right call so far this month.
MercadoLibre is performing at an insane level this year, and the stock price reflects that. It took a week for the stock to hit Piper Jaffray's target. Something tells me it's going to take a lot longer than that for MercadoLibre stock to hit Citi's lower price goal -- if it even gets there at all.
