MercadoLibre (MELI) – Breaking Out on Solid Volume (Analysis and Score)
Monday, December 5, 2011 11:11 am
Mercadolibre (MELI) is essentially the “ebay” of Latin America. The company has an excellent model and the management has definitely delivered. Even as the chart has shown some very choppy price action, yet the most recent weekly chart did provide for both a “double-bottom” and a cup/handle with a VERY deep base. the volume on this breakout is tracking at almost 135% of the daily average.
$90 is a key level to keep above for this to be considered a solid/confirmed daily breakout…
Here is our recent analysis of the company’s fundamental and technical characteristics. Also note that this is a stock that has come through the rigorous screening process that we use as a cornerstone of our investment strategy.
Horowitz & Company’s proprietary Technical Scoring System (T|score) takes into consideration both individual security technicals as well as the overall market direction when considering whether or not to purchase a company. H&C’s Market Trend Indicator (MTI) is a measure which is designed to evaluate the overall trend in the market. There are four designated levels to assess the trend which include: Strong Downtrend, Downtrend, Rally and Strong Rally. We are currently in an environment where the MTI is in a Rally. All of our indicators are showing that the markets are currently in a stable rally or have pulled back from a Strong Rally. Those with a moderate risk tolerance could begin to look for securities breaking out on their radar with medium to higher technical scores. With that said, this stock ranks in the highest percentile of stocks from an individual security technical score. H&C would consider purchasing a small portion of this position even during a Strong Downtrend. This position would be a definite purchase if the market were to be in Downtrend or any kind of Rally.
Below are some of the areas where Mercadolibre Inc (MELI) excelled or detracted from the value of the technical score:
Stochastics are currently showing some bullish attributes which may mean this stock has some room to run in the short run.
In terms of price and volume especially over a short period of time it is important to see if there is any weight behind either a rally or correction. This company has shown to have good price action in terms of volume and therefore has a greater chance to move higher if the overall market and economy are to continue to trend higher. Higher volume with positive price also will provide support levels for this position if it were to decline back to these levels.
On a 12-month rolling period this company has performed very well when comparing against its peers and equities in the S&P 1500. We see this as a positive sign for this company as it shows strength relative to the overall market
H&C currently sees Mercadolibre Inc (MELI) in a Short Term Uptrend and Long Term Uptrend.
Horowitz & Company’s proprietary Fundamental Scoring System (F|score) takes into consideration many factors related to each company’s financial history and outlook. This system is oriented toward a growth model and therefore will give a higher score to those companies which continually show increasing earnings per share and revenue over time. Over the long-run (and when looking to purchase a security) we prefer companies with a track record of growth and solid fundamentals. In the short-term however, it is price / technicals that pay. When investing, we combine both of these analyses to seek out possible investment opportunities within our universe of stocks.
This stock ranks very highly with regard to fundamental factors and could be considered a candidate. See below for details on where this company thrives and possibly some of its drawbacks:
We find that EPS Growth on a Quarter over Quarter basis is one of the strongest components when screening for growth stocks. Continued EPS Growth in a company generally shows strength in leadership, the ability to manage expenses and improve the bottom line.Over the last three quarters, this company has done exceptionally well producing EPS Growth Rates last quarter, 2 quarters ago and 3 quarters ago 39.53%, 30.77%, 45.45% respectively.
Revenue Growth similar to EPS Growth is also a strong component to consider when screening and scoring for growth companies. Continued growth in revenue shows that the company is innovative, marketable and its products remain relevant in the marketplace.Over the last three quarters, this company has done exceptionally well producing Revenue Growth Rates last quarter, 2 quarters ago and 3 quarters ago 45.89%, 32.12%, 33.79% respectively.
Last quarter this company reported Earnings Per Share 40.19% better than analysts had expected. We believe this surprise although only for one quarter could set a trend for future earnings reports and guidance.
Price relative to earnings growth is commonly referred to as the PEG Ratio. This companies price is further inflated than what we would like to see when compared against growth as it’s PEG Ratio is 1.77. We generally would like to see the PEG ratio under 1.5 and it is even better if it is under 1.0.