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Why Arcos Dorados Stock Lost 17% in August

By Demitri Kalogeropoulos – Sep 5, 2019 at 9:07AM

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A potential political crisis has investors worried about the fast-food chain's profits.

What happened

Arcos Dorados (ARCO 2.35%) trailed the market last month by dropping 17% compared to a 2% decline in the S&P 500, according to S&P Global Market Intelligence.

That pushed shares deeper into negative territory, down 18% so far in 2019 compared to a 17% increase in the broader market.

Five young adults eating fast food while seated around a table.

Image source: Getty Images.

So what

The Latin American restaurant stock reported earnings results early in the month that showed significant pressures from currency devaluations in Argentina and Brazil. Sales rose 14% after excluding those exchange rate shifts but fell 2% on a reported basis. The McDonald's franchisee notched some important wins in the period, too, led by higher profitability. However, investors chose to focus instead on political and economic turmoil in Argentina, which threatens businesses like Arcos Dorados. A crisis in the country severely impacted Arcos Dorados when it last occurred back in 2001.

Now what

Because of that history, political uncertainty will likely continue to weigh on the chain's stock. But shareholders can take comfort in the fact that Arcos Dorados' underlying business is growing stronger, as evidenced by higher traffic and improving customer satisfaction. Growth prospects are particularly attractive for the emerging home delivery market as well. By focusing on these factors, the restaurant chain is putting itself in the best possible position to weather any potential economic upheaval in Argentina.

Demitrios Kalogeropoulos owns shares of McDonald's. The Motley Fool recommends Arcos Dorados. The Motley Fool has a disclosure policy.

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Arcos Dorados Holdings Inc. Stock Quote
Arcos Dorados Holdings Inc.
ARCO
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