Shares of MercadoLibre
Revenue ballooned 82% year over year to $34.5 million, driven by 76% higher auction and classifieds action and 113% growth in payment services. GAAP earnings landed at $0.07 per share, up from $0.01 a share last year.
MercadoLibre may be small and swift, but these percentage increases would have felt good to any young Starbucks wannabe or erstwhile Microsoft growth emulator. The only reasonable explanation for the market reaction would be sky-high expectations. Sure enough, the stock's P/E ratio was a nosebleed-inducing 151 times trailing earnings before the report and remains at a hefty 114 even after we account for the improved bottom line and reduced market cap.
As exciting as the growth story is with a largely untapped market in a rapidly developing part of the world, it's always hard to justify that kind of valuation. I mean, you could buy into similar growth levels through Research In Motion
If you really want to own a piece of MercadoLibre, I'd suggest waiting a while until the company grows into its valuation a bit. Until then, any report that falls short of enormously inflated expectations will hurt a lot. Might as well skip all that heartache when there are better options -- especially with South Korean counterpart Gmarket
Starbucks and Microsoft are Motley Fool Inside Value picks. Sigma Designs and Gmarket are Rule Breakers recommendations, and Sigma is also a Motley Fool Hidden Gems Pay Dirt selection. Starbucks and eBay are Stock Advisor picks, and the Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure knows that sometimes you get what you pay for -- but this stock is still expensive.