MercadoLibre Inc (NASDAQ:MELI) Fits the CAN SLIM Strategy with Strong Growth and Market Leadership

The CAN SLIM investment strategy, created by William O’Neil, blends fundamental and technical analysis to spot high-growth stocks with strong momentum. The approach looks for companies showing faster earnings and sales growth, leading positions in their industries, and support from institutional investors, all while considering the overall market trend. By selecting stocks that fit these conditions, investors target substantial gains during favorable market periods.

MercadoLibre Inc (NASDAQ:MELI) stands out as a strong option for CAN SLIM investors due to its solid fundamentals and technical patterns. Here, we review how MELI matches the strategy’s main elements:

C – Current Earnings & Sales Growth

The CAN SLIM method favors companies with rising quarterly earnings and revenue growth. MELI posted a 43.7% year-over-year EPS increase and 37% sales growth in its latest quarter, well above O’Neil’s recommended minimums of 20-25%. This improvement points to strong business performance, a key factor for growth-focused investors.

A – Annual Earnings Growth

Long-term profitability matters. MELI’s 3-year EPS compound annual growth rate (CAGR) of 172.7% greatly exceeds the strategy’s typical range of 25-50%. Its Return on Equity (ROE) of 41.2% also highlights efficient use of capital, confirming its status as a top growth stock.

N – New Products, Management, or Highs

While qualitative aspects like innovation are harder to measure, MELI operates in Latin America’s fast-growing e-commerce and fintech markets, placing it at the center of digital change. On the technical side, the stock has held near its 52-week highs, though recent sideways movement hints at a possible breakout.

S – Supply & Demand Dynamics

MELI’s debt-to-equity ratio of 0.57 shows reasonable leverage, fitting CAN SLIM’s preference for financially sound companies. Though trading volume has dipped lately, its liquidity remains adequate for institutional activity.

L – Market Leadership

Relative strength is a key trait of CAN SLIM stocks. MELI’s 82.4 relative strength score means it beats over 82% of the market, a sign of leadership. Its strong performance against peers (ranking in the top 30% of broadline retail companies) further highlights its competitive advantage.

I – Institutional Sponsorship

Institutional ownership is 84.8%, slightly below the 85% level often linked to heavy concentration. This suggests potential for more institutional buying, which could push the stock higher.

M – Market Direction

While MELI’s short-term trend has softened, the broader S&P 500 remains in a long-term upward trend, a positive environment for CAN SLIM stocks.

Technical & Fundamental Snapshot

• Fundamental Rating (7/10): MELI scores well on profitability and growth, with healthy margins and rising revenue. However, its valuation remains high, common for fast-growing companies. (Full FA Report)
• Technical Rating (6/10): The stock shows a reasonable setup with consolidation near support, though recent downward pressure calls for caution. A move above $2,386 could indicate renewed strength. (Full TA Report)

Conclusion

MercadoLibre displays many CAN SLIM qualities: rapid earnings growth, industry leadership, and solid institutional backing. While valuation and short-term technicals need attention, its long-term growth path aligns with the strategy’s core ideas.

For investors looking for similar high-growth opportunities, check our pre-configured CAN SLIM stock screener for more ideas.

Disclaimer: This analysis is not investment advice. Conduct your own research or consult a financial advisor before making investment decisions.