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Why MercadoLibre Stock Gained Today

By Evan Niu, CFA - Jan 19, 2021 at 12:57PM

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A Wall Street analyst boosts the price target on the Latin American e-commerce specialist.

What happened

Shares of MercadoLibre (MELI 5.84%) have gained as much as 5% today after the company received a bullish vote of confidence from Wall Street. HSBC reiterated a buy rating on the stock while increasing its price target from $1,800 to $2,100, approximately 13% upside from Friday's close.

So what

Analyst Ravi Jain is impressed with the Latin American e-commerce company's rise to a $100 billion market cap, and wouldn't be surprised if the stock "face[d] a near-term breather." But the analyst remains bullish on MercadoLibre's long-term prospects, particularly as it pushes deeper into fintech services.

Green stock chart going up

Image source: Getty Images.

The path to the next $100 billion increase in market valuation may take six to seven years and assumes that the company's valuation multiples revert to one times enterprise value to gross merchandise value (EV/GMV) and six times payments revenue. The payments business justifies a higher multiple since it is growing much faster -- total payments volume (TPV) soared by 161% in the third quarter on a constant currency basis.

Now what

Like many e-commerce platforms, MercadoLibre has been an inadvertent beneficiary of the COVID-19 pandemic, as consumers quickly shifted to purchasing things online. Growth may decelerate as vaccine distribution ramps up and the world slowly returns to normal.

"Upside risks to this timeline are stronger growth [versus] pre-COVID-19 in a post vaccine world and multiples remaining elevated for multiple years," Jain wrote in a research note to investors. "Downside risks to the timeline are execution slips, rising competition and/or regulatory hurdles."

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Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$739.46 (5.84%) $40.82

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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