Why Arcos Dorados Stock Fell 24% in 2018

Concerns over the economic outlooks in many of its core markets convinced investors to ignore the McDonald's franchisee's solid growth results last year.

Demitrios Kalogeropoulos
Demitrios Kalogeropoulos
Jan 9, 2019 at 5:36PM
Consumer Goods

What happened

Shares of international fast-food specialist Arcos Dorados (NYSE:ARCO) trailed the market last year, shedding 24% compared to the 6% drop in the S&P 500, according to data provided by S&P Global Market Intelligence.

That result also contrasts with McDonald's (NYSE:MCD), which generated a slight gain for the year.

Four young adults eating fast food.

Image source: Getty Images.

So what

Arcos Dorados, the leading franchisee of McDonald's in Latin America, has been held back in recent years by challenges including an elevated debt load and exposure to huge foreign currency swings. But 2018's slump had more to do with macroeconomic weakness in many of its key markets, including Mexico and Brazil.

Overall operating results have been good lately, though, with sales rising 8% in the most recent quarter while profitability ticked higher.

Now what

Eventually, investors should start rewarding the fast-food restaurant operator for strong growth figures like that by pricing its stock at a higher premium. Yet the outlook for such a rebound is complicated by concerns over world trade, currency exchange rates, and the economic health of various countries. That's not to say that patient, long-term owners of Arcos Dorados shares won't be rewarded, but the company does represent a riskier investment in many ways than simply picking up shares of McDonald's.

Check out the latest Arcos Dorados earnings call transcript.