Can MercadoLibre Keep Going After Last Week's 12% Pop?

By Markets Fool.com

Image source: MercadoLibre.

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Shares of MercadoLibre (NASDAQ: MELI) hit an all-time high last week, soaring nearly 12% along the way. An analyst upgrade from J.P. Morgan and a bullish note from Piper Jaffray helped set a bullish tone for the leading online marketplace through Latin America.

J.P. Morgan's Andre Baggio boosted his rating on the stock to "overweight." He sees MercadoLibre gaining market share, given the compelling one-stop-shop nature of its suite of fulfillment tools and its MercadoPago payment platform. He points out that MercadoLibre is now growing its revenue at its fastest rate since it went public in 2007, an unusual case of accelerating top-line growth, given that it's 10 times bigger now.

Baggio sees earnings growth as a driver to stock gains in the near term despite the stock's seemingly lofty valuation. He is giving his price target a big boost, taking it from $133 to $200. That's meaty. It finds Baggio's target going from lower than where the stock was to higher than where it is now.

Piper Jaffray's Gene Munster was already bullish on the stock, with an "overweight" rating and a $185 price target. He issued a bullish note sticking to those convictions, pointing out that listings continue to grow at a torrid pace. Piper Jaffray's proprietary web analytics suggest that listings have soared 85% over the past year. The assumption is that suppliers are relying more on MercadoLibre, given some of the recent improvements with the platform.

Growth in any language

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MercadoLibre is in a good groove. The stock took off in early August after posting blowout quarterly results. Revenue climbed 29% for its second quarter, but it was up a robust 73% in local currency. Sales in Brazil and Argentina -- MercadoLibre's two biggest markets -- soared 57% and 46%, respectively.

Adjusted earnings climbed 68% to $0.74 a share after backing out one-time write-offs in Venezuela. Analysts were holding out for only $0.59 a share. MercadoLibre's bottom-line results have exceeded Wall Street's profit targets by at least 20% every single quarter over the past year.

MercadoLibre's marketplace is on fire. Gross merchandise volume topped $2 billion, up 68% in local currency and a still hearty 57% if you back out Venezuela and its hyperinflation. There were 43.7 million units sold through its marketplace during the quarter, 45% ahead of the prior year's showing.

MercadoLibre's payment platform is faring even better. MercadoPago processed 32 million transactions during the quarter, a 76% spike since a year earlier.

Wall Street keeps warming up to the dot-com darling's success in Latin America. Over the past three months alone, we've seen analysts go from expecting $3.21 a share in earnings to $3.50. That movement doesn't make the stock cheap, and even $3.50 a share in 2017 values MercadoLibre stock at more than 50 times next year's earnings. Then again, MercadoLibre has never been cheap -- even during its lulls.

One Wall Street pro is now bullish on MercadoLibre, and another is still backing it as a growth-stock investment. The shares have never been high, but the market seems to think that new highs will come in the near future.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.