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Summary

  • Mercadolibre is the eBay of Latin America and one of the best growth companies in the region.
  • Depressed prices are due to fears of effect of Venezuela turmoil on earnings from that country.
  • We recommend hedging any long positions with a protective put.

Mercadolibre's (NASDAQ:MELI) stock has been depressed lately falling over 37% from its October highs. The decline has mainly been due to an overall sell off growth stocks with the added concern of the effects of unrest in Venezuela on the bottom line. Venezuela accounts for 17% of the companies earnings and currency devaluations both there and in Argentina may have distorted how the company has been accounting for these earnings.

Nevertheless the growth potential is strong with the company. We analyze more detail within the video below, but the limited penetration of eBay services within the region fuel growth in the company. Despite concerns of Venezuela and Argentina, earnings growth was still 16.7% over the past twelve months and is expected to continue to grow by another 24% per year over the next five years.

However, with earnings coming out this week (May 8th) we recommend hedging any positions with a protective put. Volatility is historically high during Mercadolibre's earnings reports and conventional stops are not useful during illiquid after hours sessions. The length of the put can vary for the timeframe readers choose to hold the stock.

Source: High-Risk, High-Reward Opportunity With Mercadolibre

Additional disclosure: I also have May dated puts with a $90 strike price.