MercadoLibre is the IBD Stock of the Day for Monday. The top-rated e-commerce stock is bouncing off its 50-day line after a two-week pullback from a strong rally, offering a new buying opportunity.
MercadoLibre stock rose 3.5% to close at 2,454.76 on the stock market today, trading just below the 21-day line. Shares of the Uruguay-based e-commerce and financial technology company are ahead 44% this year.
Often described as the Amazon of Latin America, MercadoLibre operates an e-commerce platform across 18 countries in the region. Its largest markets are Brazil, Mexico and Argentina, where it was founded. MercadoLibre also offers Mercado Pago, a fintech business that includes a digital wallet, credit and payments services.
MercadoLibre Stock
With gains during Friday trading and intraday Monday, MercadoLibre stock has rebounded from its 10-week line to just above its 50-day moving average. The first or second rebound from those levels after a breakout offers a buying opportunity.
MercadoLibre staged a late April breakout stock past a 2,202 buy point from a double-bottom chart base, according to IBD MarketSurge.
The stock gapped up to a record high after MercadoLibre reported its first-quarter earnings results on May 7.
Shares peaked at 2,635.88 on May 22, then pulled back over five sessions starting June 6. That was after Reuters reported that MercadoLibre would expand free-shipping to more customer orders in Brazil. The company is competing in Brazil against Amazon, PDD Holdings' Temu and Shopee, which is owned by Sea Ltd..
The expanded free-shipping offering sparked some concern. Analysts at Citigroup opened a "downside 30-day catalyst watch" for MercadoLibre stock following the news. Citi analysts still rank MELI stock a buy. But they warned clients they foresee potential pressure on margins in Brazil, "raising a yellow flag for the short-term," as quoted by financial news site The Fly.
The concerns about free-shipping in Brazil at least temporarily cooled a red-hot run for MercadoLibre stock. Shares are down 4% in June after gaining roughly 30% from April through May.
MELI stock could also have a flat base by the end of this week, with a 2,635.88 buy point.
MercadoLibre Q1 Beats Expectations
Earnings for MercadoLibre in its March-ended quarter grew 44% to $9.74 per share, whereas analysts polled by FactSet were expecting earnings of $8.27 per share.
Revenue increased 37% to $5.9 billion, easily topping analyst estimates of $5.47 billion.
Following the report, Wedbush analyst Scott Devitt placed MercadoLibre among the stocks he is "most positive" on in the near-term following Q1 earning season.
"MercadoLibre reported strong Q1 results with GMV (gross merchandise value), revenue, and operating income well ahead of expectations," Devitt wrote in a mid-May client note. "Upside relative to expectations was primarily driven by (1) strong first-party GMV growth, particularly for CPG goods, (2) continued healthy product adoption across the credit business, and (3) outsized e-commerce performance in Argentina."
Devitt rates MercadoLibre stock as outperform with a 2,800 price target.
MercadoLibre Stock Has A Top IBD Composite Rating
MercadoLibre stock had a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating.
Strong earnings growth has powered MercadoLibre to a best-possible EPS Rating of 99. Earnings increased 103%, 9%, 288% and 44% in the company's previous four quarters.
Despite uncertainty around global trade from tariffs, e-commerce stocks have outperformed this year. The 59-stock Retail-Internet industry group tracked by IBD ranks 10th among 197 industry groups, based on six-month price performance. The overall group is up 7.7% year-to-date.
MercadoLibre ranks third in that group, according to IBD Stock Checkup, behind only DoorDash and Fiverr International.
Along with the IBD 50, MercadoLibre stock is on IBD's Tech Leaders and Big Cap 20 lists.
Meanwhile, MercadoLibre stock has a 21-day average true range, or ATR, of 2.5%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action have a high ATR. With the S&P 500 and Nasdaq now in a power trend, investors can look to stocks with a 21-day ATRs of up to 8%, though they should be wary of being too concentrated in high-octane names.
