MELI Forensic Analysis

PART 1: TRADING EXECUTION

Trading Setup & Entry Strategy

Action: AGGRESSIVE COUNTER-TREND BUY The stock is currently trading 12% below its 200-day SMA, a rare deviation for a high-growth compounder, suggesting a cyclical oversold condition rather than a structural breakdown. While the primary trend is bearish, the MACD Buy Signal and stabilization above the Lower Bollinger Band ($1902) present an asymmetric risk/reward for a swing trade.

• •Entry Zone: $1,980 - $2,005 (Current levels).
• •Aggressive Add: If price dips to $1,920 (retest of recent support), increase size.
• •Stop Loss: $1,890 (Hard Stop). A break below the Lower Bollinger Band and psychological $1,900 support invalidates the relief rally thesis and signals a falling knife.
• •Position Sizing: 3-4% of portfolio. This is a high-beta counter-trend trade; do not oversize.
• •Targets:
  1. •$2,090 (50-Day SMA confluence - Take 50% profit here).
  2. •$2,260 (200-Day SMA / Resistance - Exit remainder).
• •Timeframe: 1-3 Weeks.
• •Risk/Reward: 1:2.8 (Risking ~$100 to make ~$280).

Warning: The stock is in a BEARISH_DOWNTREND (Price < 200 SMA). Do not hold if the MACD histogram flips negative. This is a "rental," not a "marriage," until price reclaims the 200-day SMA.

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PART 2: DETAILED RESEARCH

Executive Summary

Thesis: MercadoLibre (MELI) is experiencing "growing pains" margin compression as it aggressively expands its credit portfolio, causing the stock to lag its 200-day average by ~12%. With 39.5% YoY revenue growth ($7.4B) and 30% Operating Income growth, the fundamental growth engine is intact. The current pullback offers a tactical entry point supported by smart money inflows (Druckenmiller), provided the credit book quality stabilizes. Analysis Date: 2025-12-27 | Price: $1,998.21

Recent Material Events (8-K Analysis)

• •Dec 2025 Filings: Routine administrative filings regarding notes/debt obligations. No material distress signals.
• •Oct 29, 2025 (Q3 Earnings): Reported net revenues of $7.4B (up 39.5% YoY). However, provision for doubtful accounts surged 60.7% YoY to $815M, compressing operating margins to 9.8% (from 10.5%). This credit risk expansion is the primary driver of recent price weakness.

Insider Trading & Institutional Activity

• •Stanley Druckenmiller: Recent reports (Dec 22, 2025) indicate the billionaire investor has initiated/added to a position, viewing the stock as "overlooked" despite its massive run since IPO. This acts as a significant vote of confidence against the short-term margin concerns.
• •Insider Activity: No significant recent insider selling reported in the last 30 days that would signal internal alarm.

Current News & Market Context

• •Valuation Debate: Recent analyst coverage (Dec 25, 2025) highlights volatility but generally reaffirms the long-term GMV momentum.
• •Macro Headwinds: Stronger USD continues to impact reported numbers via FX headwinds in Argentina and Brazil, though FX-neutral growth remains roughly 49%.

Financial Health & Business Model

Growth vs. Margins: The core commerce engine is robust, but the Fintech arm is weighing on profitability due to credit loss provisions.

• •Red Flag 🔴: Net Income growth (+6%) lagged significantly behind Revenue growth (+39.5%), driven by a 74.8% increase in income tax expense and higher bad debt provisions.

Valuation Analysis

• •Reverse DCF: At $1,998, the market is pricing in an implied free cash flow growth rate of approximately 14-16% for the next 5 years. Given MELI's consistent 30%+ top-line growth, the stock is effectively priced for a massive deceleration, creating a value buffer.
• •Price Context: Current price ($1,998) is roughly flat vs. 5 days ago but down ~2% over 20 days. It is trading significantly below the 50-day SMA ($2,089), indicating short-term oversold conditions.

Forensic Accounting Flags

• •⚠️ Credit Quality Deterioration: NIMAL (Net Interest Margin After Losses) compressed to 21.0% in Q3 2025 from 24.2% in Q3 2024. This indicates that while the loan book is growing ($8.2B vs $4.9B in Dec 2024), the quality of earnings from that book is degrading.
• •⚠️ Provision for Doubtful Accounts: Surged to $2.1B for the 9-month period (up 58%). This requires close monitoring; if provisions grow faster than credit revenue for another quarter, the thesis breaks.
• •✅ Cash Position: Strong liquidity with $9.2B in total cash and investments, sufficient to absorb credit shocks.

Technical Analysis & Trade Timing

• •Trend: BEARISH (Price < 200 SMA). The "Death Cross" risk is present, but price action suggests a base is forming.
• •Momentum: BULLISH DIVERGENCE. The MACD is flashing a buy signal (Histogram +5.22), while RSI is neutral (46), suggesting sellers are exhausted at the $1,900 level.
• •Bollinger Bands: Price is bouncing off the lower band ($1,902). A mean reversion to the basis (20-day MA) or upper band ($2,149) is statistically probable.
• •Reconciliation: Fundamentals say "Long Term Buy" but "Short Term Margin Squeeze." Technicals say "Oversold Bounce." The strategy is to play the bounce to the 50-day SMA, but respect the broader downtrend by keeping stops tight.

Short-Term Trading Strategy (2-5 Days)

• •Timeframe: SWING_2_5_DAYS to SWING_1_2_WEEKS.
• •Catalyst: End-of-year window dressing and "smart money" accumulation news (Druckenmiller) likely to support a floor at $1,950.
• •Execution:
  • •Buy 40% at $1,998.
  • •Add 40% at $1,955 (intraday support).
  • •Add 20% on a daily close above $2,010.
  • •Take Profit: Trim 50% at $2,089 (50SMA). Trail the rest.

Investment Recommendation

RATING: BUY (TACTICAL) Conviction Level: 7/10 While the long-term trend is currently broken (price < 200 SMA), the valuation disconnect and MACD buy signal offer a compelling tactical long. The growth story remains one of the best in emerging markets, provided they control credit losses.

One-Liner Thesis: "Aggressive counter-trend buy opportunity as fintech credit expansion compresses margins temporarily, creating a technical pricing dislocation (12% below 200SMA) despite robust 39% top-line growth."