Please ensure Javascript is enabled for purposes of website accessibility

Why Arcos Dorados Stock Lost 17% in August

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Arcos Dorados Holdings Inc. Stock Quote
Arcos Dorados Holdings Inc.
$7.84 (2.35%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.