MercadoLibre (NASDAQ:MELI) runs one of the biggest e-commerce marketplaces in Latin America. The stock is down about 14% so far this year. The crux of the story is heavy spending by the company. But some analysts believe that spending has already started paying off.
Earlier this year, Michael Burry disclosed on his Substack that he bought a position in MercadoLibre in the $1,600 range after the stock fell on earnings. He added to the position later, according to media reports.
Insider Monkey’s proprietary database of elite funds shows that the number of hedge fund investors in MercadoLibre increased to 107 at the end of the second quarter, from 102 in the first quarter.
Notable funds that also increased their stakes in Q2 include Boykin Curry’s Eagle Capital Management, which raised its holding by 80% in the second quarter. Philip Uhde’s Linonia Partnership raised its stake by 326%. David Blood and Al Gore’s Generation Investment Management added 4% for a stake worth about $802 million, or 7.8% of its portfolio. Chase Coleman and Feroz Dewan’s Tiger Global Management raised its holding by 14% to about $260 million, or 1.08% of its portfolio.
Eagle Capital explained earlier this year why almost half of its capital is in MELI. Read their thesis here.
With Burry and other elite funds backing MercadoLibre (NASDAQ:MELI) while the stock trades well below its high, we will dig deeper to see whether it can rebound.
MercadoLibre (NASDAQ:MELI) trades at a big premium to its sector and a big discount to its own history. The stock costs 45.12 times forward earnings against a sector median of 14.61, and that multiple sits 51.82% below its own five-year average of 93.66. Growth explains part of the premium. Net revenues rose 50% in the second quarter. Net income fell about 11% because operating income declined as management spent more on shipping, credit cards, and user acquisition.
Read why MercadoLibre (MELI) Is Spending Big to Defend Its Latin American Moat here.
Analysts expect that spending to pay off and forecast earnings growth of about 29% a year. The PEG ratio, which uses analysts’ growth forecasts, is 1.60 against 1.27 for the sector. That means investors pay about 25.81% more per unit of expected growth than they would for a typical company in the sector. Earnings have not started to rebound yet, so the valuation depends on that forecast coming true. Wall Street analysts rate the stock a Buy. The stock looks reasonably priced if earnings catch up with revenue, and it looks expensive if they do not. That makes the next few quarters of earnings the key test for MercadoLibre (NASDAQ:MELI).
