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MercardoLibre: From First to Worst

Posted on May 14th, 2018

MercadoLibre was the hottest stock in the fourth-quarter surging by over 21 percent, easily outpacing the S&P 500’s return of only 6 percent. According to the WhaleWisdom 13F heatmap, the company was the number one stock amongst institutions in the fourth quarter.

However, 2018 has been far different, with shares surging by over 30 percent through the beginning of March, then reversing and plunging 24 percent since reaching its highs. The company reported results on May 4 that were negatively impacted by an accounting rule change. The absorption of shipping costs resulted in an unexpected loss for the first quarter of $0.29 per share.

Institutional Buying

Institutions were aggressively adding to shares of the South American e-commerce company during the fourth-quarter, with the number of aggregate 13F shares rising by almost 3 percent to 40.614 million shares.  A total of 79 institutions bought a new position, while 115 added to holdings. Only 43 institutions exited the stock, while 142 reduced the number of shares.  Given the poor price performance and the changes to the accounting standards, it would not be surprising to see institutions fleeing the stock in the first quarter when new reports get filed on May 15.

Analyst Slash Estimates

Analysts have been slashing their earnings estimates for the stock aggressively since February for the full-year 2018. In fact, estimates for earnings per share have fallen an astounding 66 percent to only $0.94 from $2.79, over the past three months. Revenue estimates have also been slashed by over 18.5 percent to just $1.67 billion from $2.06 billion.

Price Targets Remain High

In an odd twist, the average analyst price target for the stock is $361, about 14 percent higher than the stocks current price around $314. What is also bizarre, is that the price target has risen by 27.5 percent since the beginning of the year, despite the stock’s steep decline over the last few months. It would not be surprising to see those aggressive price targets start to reverse.

Technical Take

The technical chart would suggest shares are likely not finished falling, with a technical gap at $298 that likely gets filled, a decline of 5 percent further. The $298 price also represents a critical support level and should the stock fall below that price; it could suffer an even steeper decline. The relative strength index (RSI) is also continuing to trend lower, and it would need to fall below 30 to reach oversold conditions.

Investors were very enthusiastic getting into shares of Mercado Libre in the fourth-quarter. However, that enthusiasm quickly faded by mid- February, and became a stampede to leave, making what had been one of the hottest stocks amongst institutions potentially into the most hated.

This entry was posted on Monday, May 14th, 2018 at 9:10 am and is filed under HeatMap, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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