Shares of MercadoLibre (NASDAQ:MELI) have gained as much as 5% today after the company received a bullish vote of confidence from Wall Street. HSBC reiterated a buy rating on the stock while increasing its price target from $1,800 to $2,100, approximately 13% upside from Friday’s close.
Analyst Ravi Jain is impressed with the Latin American e-commerce company’s rise to a $100 billion market cap, and wouldn’t be surprised if the stock “face[d] a near-term breather.” But the analyst remains bullish on MercadoLibre’s long-term prospects, particularly as it pushes deeper into fintech services.
The path to the next $100 billion increase in market valuation may take six to seven years and assumes that the company’s valuation multiples revert to one times enterprise value to gross merchandise value (EV/GMV) and six times payments revenue. The payments business justifies a higher multiple since it is growing much faster — total payments volume (TPV) soared by 161% in the third quarter on a constant currency basis.
Like many e-commerce platforms, MercadoLibre has been an inadvertent beneficiary of the COVID-19 pandemic, as consumers quickly shifted to purchasing things online. Growth may decelerate as vaccine distribution ramps up and the world slowly returns to normal.
“Upside risks to this timeline are stronger growth [versus] pre-COVID-19 in a post vaccine world and multiples remaining elevated for multiple years,” Jain wrote in a research note to investors. “Downside risks to the timeline are execution slips, rising competition and/or regulatory hurdles.”
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