MercadoLibre (MELI) is likely to tank after Q4 earnings

MercadiLibre ($MercadoLibre(MELI)$ ) will be announcing its Q4 2021 results tomorrow on the 22nd Feb 2022.

Price action has been on a downtrend for the e-commerce giant since it formed a double peak last Sep 2021 at ~ $2000 and since the entire e-commerce sector has been out of favour.

In addition, the double digit inflation risk in South America puts additional pressure on the risk premium investors have to account when valuing MELI.

We think that there is a strong chance that MELI will plunge after it announces its earnings tomorrow and we have set a target at the end of this week at $630 (32% downside risk). This number also coincides with the gap it has back in May 2020 which has not been filled so there is a good likelihood this will be the opportune time to do so.

From a valuation perspective, the e-commerce giant is still trading at a lofty valuation of P/Sales of more than 8x and given the current risk on environment, there is a good chance it might decompress.