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MercadoLibre, Noodles & Company Both Surge on Earnings Speculations

By John Divine - Feb 26, 2014 at 6:17PM

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Wal-Mart leads Dow with 2% gains as impact of Target's data breach less ominous than expected

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

Stock prices, very broadly speaking, are driven by only two things: financials and speculation. If, for example, Company X goes public one day having never before recorded a dollar of revenue, then suddenly sells $4 billion worth of pet rocks in its first quarter, Company X shares would skyrocket. But if, shortly thereafter, rumors of accounting fraud at Company X surface, those speculating on the truth of the rumors would drive shares into the ground.

The trouble with speculation in this case, is that it stems from an unreliable source: a rumor. Thankfully, there's such a thing as informed speculation, which is where leading indicators like jobless claims and new home sales come into play. And new home sales in January were dramatically higher than expected, jumping to a 468,000 annual rate, the highest since 2008. Encouraged by this strength but not yet convinced this growth is sustainable, the Dow Jones Industrial Average (^DJI 1.63%) added 18 points, or 0.1%, to end at 16,198. 

Wal-Mart Stores (WMT 0.21%) easily finished the day as the Dow's top gainer, tacking on 2% after rival big-box retailer Target waxed optimistic about its 2014 outlook. Wal-Mart shareholders haven't had to deal with the PR nightmare Target has faced after a massive security breach late last year leaked tens of millions of Target customers' credit card numbers. While Target's full-year outlook sent shares 7% higher, it was also good news for Wal-Mart, which can breathe easier now that it knows brick-and-mortar customers haven't sworn off shopping in stores.

Shares of Argentina-based MercadoLibre (MELI 6.90%), a leader in Latin American e-commerce, added 5% Wednesday as investors bid up the stock in optimistic anticipation of its quarterly report tomorrow. Sometimes touted as the "Latin American eBay," the $4 billion MercadoLibre is a fraction of eBay's $74 billion e-commerce empire. But MercadoLibre has one thing that eBay lacks: an insane amount of growth. MercadoLibre's grown earnings between 31% and 76% in each of the last four years, while eBay's only managed to grow earnings in two of its past four years.

Similarly, MercadoLibre's $4 billion valuation looms large over the $1.2 billion Noodles & Company (NDLS 5.39%), which went public last June. Investors had an insatiable appetite for shares of the fast-casual restaurant as soon as the stock debuted, with the stock rocketing more than 70% in its first day of trading. Today's gains weren't too shabby, either, as anxious shareholders bid Noodles & Company up 7.9% ahead of its quarterly earnings report. Unfortunately for today's speculators, fourth quarter earnings and revenue both disappointed, sending shares right back to where they came from in after-hours trading.

John Divine has no position in any stocks mentioned. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine.

The Motley Fool recommends and owns shares of eBay and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,309.51 (1.63%) $535.10
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$129.14 (0.21%) $0.27
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,064.23 (6.90%) $68.73
Noodles & Company Stock Quote
Noodles & Company
NDLS
$5.28 (5.39%) $0.27

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

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