Why Mercadolibre, Inc. Might Keep Pulling Back

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Mercadolibre, Inc.  slipped 1% today after Morgan Stanley downgraded the Latin American online auction operator from "equal-weight" to "underweight."

So what: Along with the downgrade, analyst Michel Morin planted a $75 price target on the stock, representing about 34% worth of downside to Friday's close. While contrarian investors might be attracted to the stock's recent slide, Morin believes that Mercado's valuation remains on the lofty side.

Now what: According the Morgan Stanley, Mr. Market's growth expectations for Mercado are far too optimistic. "Valuation does not adequately reflect growing macro risks in our view," noted Morgan. "Solid execution and secular tailwinds may allow MELI to grow into its valuation over time, but the risk-reward looks poor, despite the recent pullback." With Mercado shares now off more than 20% from their 52-week highs, however, a good portion of those macro risks may already be baked into the price. 

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The article Why Mercadolibre, Inc. Might Keep Pulling Back originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends MercadoLibre. The Motley Fool owns shares of MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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