Latin American Ecommerce Booming as MercadoLibre Shares Surge 28%

The Uruguay-based e-commerce platform MercadoLibre Inc. NASDAQ: MELI experienced a 28% increase in November, reaching its highest levels since November 2021. 

The MercadoLibre chart shows a cup-with-handle breakout above $1398.59 on November 14. The stock has been rallying since then and is currently 14% above its buy point, suggesting a potential pullback with moving-average support for the next buy opportunity. 

Wall Street has bullish expectations for this stock, with projected earnings growth of 134% this year, reaching $22.36 per share. 

Next year, earnings are expected to rise by another 48%, reaching $33.13 a share.

Breaking Black Friday sales records

MercadoLibre’s stock increased by 4.15% in heavy volume after the company reported record-breaking Black Friday sales, joining Shopify Inc. NYSE: SHOP . 

The company reported an 80% growth in gross sales over the year-earlier period on Thursday, November 23 and Friday, November 24. 

The November performance marked a 39% increase compared to November 2022. 

MercadoLibre also highlighted other achievements, including: 

• 140% growth in the sale of electronics, especially cell phones, notebooks, and TVs.
• A total average of 1.8 million items sold per day, reaching a peak of 2.8 million items on November 23 alone, surpassing last year’s Black Friday numbers even before Friday. 
• To achieve this record, Mercado Libre invested in logistics, hiring 7,200 temporary employees and maintaining fast delivery times even during peak sales periods.

“We are also succeeding in our objective of sustaining growth records without sacrificing the company’s margins”, said Fernando Yunes, senior vice president and leader of Mercado Libre in Brazil, in a statement.

Analysts’ optimistic outlook

usafinancetrends’s MercadoLibre analyst forecasts suggest a consensus view of “moderate buy” with a price target of $1,706.07, representing an upside of 7.36%. 

Though not a bad price target, it indicates the potential for the stock to pull back before resuming its rally. The recent rapid uptrend has placed the stock 5.8% above its 10-day moving average.

Investors willing to pay up

A high P/E ratio isn’t necessarily negative, as it indicates that investors are willing to pay a premium for a company’s future earnings, reflecting high growth expectations.

MercadoLibre is compared with other tech stocks specializing in online retail, such as Amazon.com NASDAQ: AMZN and Alibaba Group Holding Ltd. NYSE: BABA. 

Amazon’s performance has been strong since late October, with MercadoLibre slightly outpacing Amazon. 

The shows that the stock has been a poor performer this year and has significantly declined since its October 2020 high. 

Expansion of fintech unit

The company has expanded its credit and payment services. Its  Mercado Pago fintech unit offers a popular digital wallet service among its Latin American customers, as well as transactions outside of the MercadoLibre platform.  

Overall, Latin American large-cap stocks have performed well throughout this year, experiencing similar declines as U.S. stocks from August through October. 

Analysts have been bullish on Latin America this year. According to a July report from researcher Americas Market Intelligence, the region’s e-commerce business is expected to see 22% growth in volume between 2023 and 2026, valued at more than $700 billion.

This suggests that digital payments will increase alongside purchases. Additionally, the Latin American digital advertising market is growing rapidly.

Stock split possibility?

With a stock price in the quadruple digits, a stock split in the near future would not be surprising. 

A high-priced stock may split to make shares more affordable for a broader range of investors. By reducing the stock price and increasing the number of shares outstanding, a stock split can improve liquidity and attract a larger investor base without impacting its overall market value.

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