The declines in net profits were related to operating expenses that increased 21%, almost the rate of growth. Furthermore, the company had to manage a currency devaluation in Latin America, thus pushing gross margins to 72.1% from 74.8%. Overall, I don’t really see too much wiggle room for this company. It has operating margins of 34.71% (near maxed judging by this last quarter) and trades at a price/sales of 14.48 with just 20% growth.
When compared to Interactive Intelligence Group’s price/sales ratio of 3.75 and its 40% plus growth you can see that Mercadolibre Inc (NASDAQ:MELI) is by no means presenting value. Personally, I prefer the company with greater growth, improving margins, and the lower valuation, which is by all measures, the quintessential example of value.
In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I explain how earnings should be used as a platform to assess, locate, and then capitalize on value. I also call earnings season a period where retail investors can easily be trapped, as sometimes a stock will trade illogically.
To many the process of identifying value after earnings can be difficult, but if you want to improve your returns then you can start by simply reading the report and listening to the conference call before even looking at the stock and its performance. Then, you will have a clear understanding of the company’s strength or lack thereof, and can make a wise investment decision.
The article Are These Massive Movers a Buy? originally appeared on Fool.com and is written by Brian Nichols.
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