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Should Value Investors Buy Arcos Dorados (ARCO) Stock?

Zacks Equity Research

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

Arcos Dorados (ARCO) is a stock many investors are watching right now. ARCO is currently sporting a Zacks Rank of #2 (Buy) and an A for Value. The stock holds a P/E ratio of 19, while its industry has an average P/E of 26.39. ARCO's Forward P/E has been as high as 26.30 and as low as 16.54, with a median of 19.08, all within the past year.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. ARCO has a P/S ratio of 0.56. This compares to its industry's average P/S of 0.96.

Finally, investors will want to recognize that ARCO has a P/CF ratio of 9.95. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This company's current P/CF looks solid when compared to its industry's average P/CF of 17.37. Over the past year, ARCO's P/CF has been as high as 13.26 and as low as 7.80, with a median of 9.24.

These are only a few of the key metrics included in Arcos Dorados's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, ARCO looks like an impressive value stock at the moment.


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