MercadoLibre stock is Wednesday's IBD 50 Stocks To Watch pick as it pulled back and has returned to a buy zone out of a flat base. MercadoLibre had hovered above its buy zone before wavering and selling off Tuesday.
Based in Montevideo, Uruguay, MercadoLibre is the largest e-commerce and payments platform in Latin America. It operates in 18 countries, including Argentina, Brazil, Mexico, Colombia, Chile, Venezuela and Peru.
The company's platform serves more than 100 million unique active users. Also, its online marketplace and advertising services company is a top Amazon competitor.
MercadoLibre stock holds the No. 1 spot out of 60 stocks in the retail-internet group, while Amazon is No. 2. The group is ranked No. 51 out of the 197 IBD industry groups.
MercadoLibre Stock Back In Buy Zone
MercadoLibre stock broke out of a second-stage flat base with a 1,660 buy point in mid-January, according to MarketSmith pattern recognition. Shares became extended from the 5% buy zone reaching to 1,743 as they climbed to a 52-week high on Jan. 29.
The stock still has some work to do to get back to its all-time high of 2,020 reached in January 2021, when consumers shopped heavily online during the pandemic.
The stock bounced around before selling off 3.6% in heavy volume Tuesday. But MercadoLibre stock found support at its 21-day exponential moving average as it sank back in the buy zone. Shares were fractionally higher Wednesday.
MercadoLibre stock has remained above its 50-day moving average since the company's third-quarter earnings release with only one test of the line on Jan. 4. Shares are improving from Wednesday's modest morning gains. Its relative strength line also has pulled back.
Earnings Growth Explodes
MercadoLibre easily topped third-quarter earnings and sales estimates on Nov. 1. The company's earnings have grown tremendously with 180% growth in its third-quarter, following 112% and 205% in the prior two quarters.
Third-quarter sales grew 40% up from 31% and 35% in the same time periods. Further, its Mexican and Brazilian markets showed the biggest gross merchandise volume growth in its third quarter.
It's not a surprise these markets outperformed as they were the first in the MELI+ loyalty program. The program offers free shipping, free content subscriptions to Disney+ and other platforms, a free music subscription and other perks, similar to Amazon Prime.
The company's third-quarter operating margins improved to 18.2% from 11.0% in the same period a year ago. MercadoLibre reported on Nov. 25, that it had it biggest Black Friday sales in history.
Ratings For MercadoLibre Stock
Analysts expect 135% earnings growth for 2023 and 52% in 2024. MercadoLibre is expected to report its fourth-quarter earnings around Feb. 22.
MercadoLibre stock boasts a best-possible 99 IBD Composite Rating while its less-than-ideal 82 EPS Rating reflects losses from 2021 and 2020. It also holds an Accumulation/Distribution Rating of A-, meaning fairly heavy institutional buying over the last 13 weeks.
Mutual funds own 55% of shares with 2,736 owning the stock in December, up from 2,674 in September.
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