Mercadolibre (MELI): The financial media's dream

Posted Dec 17th 2007 5:34PM by Timothy Sykes
Filed under: Next Big Thing, Stocks to Buy

Online auctioneer Mercadolibre (NASDAQ: MELI)'s business is doing pretty well, but that's not the reason why the stock is up nearly 50% in the past few weeks. No, Mercadolibre is surging because its story is a wet dream for the financial media, and that's important for investors and the stock's many short sellers.

After all, when the company reported solid earnings back in early November, the stock only rose $10/share on negligible trading volume; now, after being dubbed "The Latin American eBay" by Investor's Business Daily and "The Next Baidu" by the Cramer-TheStreet.com-CNBC axis, the stock has surged nearly $20/share within a few days on huge volume. A shining example of the power of the press!

Wait, am I suggesting investors' perception of a company's business is more important than the actual business itself? You bet I am – welcome to stock market 101, I'll be your teacher for the next century or so. Sure, sure, fundamentals are the backbone of every long's case, but here at $61.55, the stock has a market cap of $2.66 billion, a trailing P/E of 300+, a forward P/E of 100+, a price-sales ratio above 30, all with a long-term growth rate of only 40%. No matter the potential of e-commerce in Latin America, it's fair to say this is one overvalued stock.

On the bright side, the chart is a perfect breakout and the comparisons to other market leaders will most likely only get stronger. I have to admit, those headlines got me to click on them and I'm more cynical than most. Imagine how many gullible, naive and stupid investors there are out there – oh yes, it's too dangerous to short this stock here. I'm a buyer on weakness.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, the star of Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund.

Tags: Baidu, BIDU, EBAY, MELI, Mercadolibre