Author: Michael Arold
Disclaimer: Michael Arold owns MELI in his Covestor Technical Swing model.
July 29, 2010: Mercardo Libre is an online commerce platform in Latin America. The company is often called the “EBay of Latin America” and has been on my watchlist for a while since it has been showing superior trading characteristics. During the recent pullback in the S&P 500 since April 30, 2010, MELI was able to build a technical base and outperform the broader market (Google Finance). As a swing trader, I’m looking for these strong trending stocks and try to capture a piece of the uptrend.
From the evaluation standpoint, at $62.62 as of market close on July 27, 2010, MELI is not cheap. The PEG ratio of 1.53 as of July 28, 2010 indicates that the stock price is growing faster than earnings, which can be a warning sign (Yahoo Finance). However, the PEG ratios of Amazon (AMZN) (Yahoo Finance) and EBay (EBAY) (Yahoo Finance) are showing similar readings, so the value seems to be normal for growing companies of this industry.
Since I’m a very short-term oriented investor, fundamental evaluation is not the major driver for my investment decisions. I rather watch out for potential short-term catalysts. In the case of MELI, two factors stand out:
1) short interest is very high as of July 29, 2010 with over 18% of the shares shorted (Yahoo Finance). A potential short squeeze could drive prices higher.
2) currently, the majority of analysts are bullish.
From the short-term perspective, I expect MELI to pullback a little. If that should happen in an orderly fashion, I might add to the position.