With a notable daily gain of 8.54% and a 3-month gain of 8.43%, Arcos Dorados Holdings Inc (ARCO, Financial) reflects a dynamic presence in the stock market. The company's Earnings Per Share (EPS) stands at 0.79, but the question remains: is the stock modestly overvalued? The following analysis aims to shed light on this query, encouraging readers to delve deeper into the valuation of Arcos Dorados Holdings Inc (ARCO).
Company Introduction
Arcos Dorados Holdings Inc operates McDonald's-branded restaurants across Latin America and the Caribbean. With a diverse menu ranging from hamburgers to salads, the company has established a significant presence in the fast-food industry. When comparing the stock price of $11.44 to the GF Value of $9.09, we initiate an intriguing exploration into the intrinsic value of Arcos Dorados Holdings.
Understanding the GF Value
The GF Value is a proprietary measure indicating the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a benchmark, suggesting the fair trading value for a stock. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, leading to potentially poor future returns. Conversely, prices well below the GF Value Line could indicate undervaluation and the prospect of higher future returns.
Currently, Arcos Dorados Holdings (ARCO, Financial) appears modestly overvalued. The stock's price of $11.44 suggests it is trading above its estimated fair value, potentially leading to lower long-term returns compared to the company's business growth.
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Financial Strength Assessment
Investing in companies with solid financial strength is crucial to mitigate the risk of permanent loss. Arcos Dorados Holdings' cash-to-debt ratio of 0.13 is lower than 73.39% of its peers in the Restaurants industry, reflecting a fair financial strength rating of 5 out of 10. This metric, along with the company's debt and cash history, provides valuable insight into its financial resilience.
Profitability and Growth Insights
Profitable companies, particularly those with consistent profitability over the long term, tend to be safer investments. Arcos Dorados Holdings has maintained profitability for 7 out of the past 10 years, with an operating margin of 7.47% that ranks above 68.12% of its industry counterparts. The company's fair profitability score of 6 out of 10 is complemented by its growth prospects, with a 3-year average revenue growth rate surpassing 70.77% of the industry.
Evaluating ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is an effective way to gauge a company's profitability. Arcos Dorados Holdings' ROIC of 8.5 suggests it is generating cash flow effectively relative to the capital invested. This is a positive indicator, as it is higher than the company's WACC of 5.49, implying value creation for shareholders.
Conclusion
In summary, Arcos Dorados Holdings (ARCO, Financial) currently seems modestly overvalued. The company exhibits fair financial health and profitability, with growth rates that are commendable within the Restaurants industry. To gain a deeper understanding of Arcos Dorados Holdings' financial journey, interested investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
