MercadoLibre: The Next Baidu?

MercadoLibre (MELI) is the Amazon (AMZN), PayPal and eBay (EBAY) of Latin America. Need I say more? MELI debuted in August with an IPO price of $21, and currently trades at $73.88. With a float of 40 million shares and Cramer now on the bandwagon, demand has been overwhelming supply.

As a long term investment MELI seems to be very promising. eBay owns almost 20% of the company, which is a big plus. With a P/E of 400 and a forward P/E of 139, this signals a bull market here and although current valuations are stretched no one can deny MELI's long term growth potential with an under penetrated and fast growing internet audience.

MELI has a target audience of up to 500 million people which is even larger than the U.S population. MELI could trade in some correlation to the Brazilian market ETF (EWZ). The option bid/ask spread on MELI can be extremely wide during volatile times and reminds me greatly of Baidu (BIDU) in terms of growth prospects and supply and demand characteristics. I remember when people said Google (GOOG) was too expensive and Barron's wrote the infamous GURGLE? magazine issue cover calling for a drop and a valuation of under $300. It is now trading at $691, case closed. I remember when BIDU was called too expensive and it is now $389. So you get my point?

Cramer says that MELI could hit $170 on a future valuation basis due to growth. If you want to make money you have to look for growth stories like these; as an investor buy it for the long term and as a trader analyze it and catch the upside cycles or the less frequent down cycles. William O'Neil, one of the greatest traders of all time, said to pay far less attention to a company's book value, dividends or P/E ratio- which for the last 50 years have had little predictive value in spotting America's most successful companies - and focus instead on more important factors such as profit growth, price and volume action, and if the company is the number one profit leader in its field. This coming from the lion's mouth.

MELI's CY 2007 estimates are for .21 and next year it could be as high as .61 in 2008 or up to 200%. Sales growth is 54.3 %+ in correlation. MELI is the Latin American online market leader in a bullish emerging market, as well as within an infantile, fast growing internet market.

Earnings estimates have been raised the past 90 days on all fiscal forecasts. As MELI hopefully outperforms its earnings estimates, Wall Street will develop more trust in this emerging global investment newbie with only one earnings call since its IPO. You can also look at MELI as an EBAY spinoff play with all of the growth but none of the slower parts.

Disclosure: Author has a long position in MELI

Comments

[bill stenner]

its great you know a lot about mercadolibre.. im sure jim cramer does too. Ive been looking through their listings since 2005. Never tried to buy anything but they have very interesting things pop up. Lets get something straight. We are talking about south america/central america mexico etc. your exhuberance for something in south america makes about as much sense as centros subprime foray into the states. canadian banks learned long ago about the pecularities of losing money betting on south america.
sure it appears more stable today..but why would you want to place your bet on something dangerous. ebay also owns something like 20% of craigslist and if you think that they are going to make money off of that anytime soon than you will be the fool parted with their money. until many of those countries make the drastic changes they need to to join the first world anything and everything is a gamble. Consider too that venezuala is one of the countries in mercadolibres group of countries..now theres a good bet if your an american!!! So lets just say if you really knew what you were talking about you would know that there are some cool old american items on mercadolibre like Enterprise Coffee Mills or antique German Spectroscopes that you can only find a reference to in the Smithsonian. I would recommend the author take up butterfly collecting with Mr. Kramer except they would both be locked up in the loony bin. How many of you know of the trade in the early 20th century between south america and the united states. you would be suprised what you might find on mercadolibre. I dont even know spanish..but it can be interesting! sooo many old vintage autos down there too.. yup .. i dont think you guys know what your talking about.

[optiondragon]

wow what a comment based on cold hard facts.
We'll see what happens in the long term Im sure you'll be long gone then and cover your short.

[optiondragon]

Cramer made $500,000 a day just to keep pace with his returns, how much money have you made?

[Dreamrider]

Bill, take a chill pill, bud. It is really not like you are perceiving it. That from someone that has actually lived in So. Am. Consider that for instance So. Am. currencies, i.e.: Argentina's (where MELI is based) in this case, seem to have stabilized once they stopped being pegged to the US dollar. Their economies have stabilized a bit as well. Look at Brazil now, and Brazil 20 years ago (Yup! in So. Am, too)... Then again, that is provided that you were born then, and had adult cognitive capabilities. Brazil 20 years ago was an economic pit, a liability to the World Bank, etc, etc... Now a days, every one wants to be in Brazil. I don't think that the later is because the trip to Sao Paolo to investigate possible investments in "tanga" manufacturing sector is tax deductible. Look at Argentina now... Remember Argentina 25-30 years ago? Where there were country-wide strikes, and political unrest arising from serious economic downfalls. Remember organized public protests, people beating up the walls of their Banco Central in Buenos Aires to get their money out? Well, it is 20-30 years later. Things are just a tad different now. Unfounded ethnic biases have no place in money... and this is about money, ain't it good ole boy?