Is There Now An Opportunity In Arcos Dorados Holdings Inc. (NYSE:ARCO)?

Arcos Dorados Holdings Inc. (NYSE:ARCO), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NYSE over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Arcos Dorados Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Arcos Dorados Holdings

What Is Arcos Dorados Holdings Worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10.07% above my intrinsic value, which means if you buy Arcos Dorados Holdings today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $7.68, then there isn’t really any room for the share price grow beyond what it’s currently trading. What's more, Arcos Dorados Holdings’s share price may be more stable over time (relative to the market), as indicated by its low beta.

What kind of growth will Arcos Dorados Holdings generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 20% over the next couple of years, the outlook is positive for Arcos Dorados Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in ARCO’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on ARCO, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for Arcos Dorados Holdings and we think they deserve your attention.

If you are no longer interested in Arcos Dorados Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.