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Should Value Investors Buy Arcos Dorados (ARCO) Stock?

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Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

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 - Free Report) is a stock many investors are watching right now. ARCO is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with a P/E ratio of 12.64, which compares to its industry's average of 24.03. Over the last 12 months, ARCO's Forward P/E has been as high as 20.32 and as low as 11.89, with a median of 14.06.

We also note that ARCO holds a PEG ratio of 1.09. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. ARCO's industry has an average PEG of 1.79 right now. Over the past 52 weeks, ARCO's PEG has been as high as 1.47 and as low as 0.36, with a median of 0.56.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. 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 0.49. This compares to its industry's average P/S of 1.12.

Finally, investors should note that ARCO has a P/CF ratio of 6.83. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 20.75. Over the past year, ARCO's P/CF has been as high as 10.44 and as low as 5.73, with a median of 6.84.

If you're looking for another solid Retail - Restaurants value stock, take a look at Brinker International (EAT - Free Report) . EAT is a # 2 (Buy) stock with a Value score of A.

Brinker International is currently trading with a Forward P/E ratio of 10.70 while its PEG ratio sits at 1.50. Both of the company's metrics compare favorably to its industry's average P/E of 24.03 and average PEG ratio of 1.79.

EAT's price-to-earnings ratio has been as high as 12.77 and as low as 5.54, with a median of 8.97, while its PEG ratio has been as high as 1.75 and as low as 0.47, with a median of 0.85, all within the past year.

Additionally, Brinker International has a P/B ratio of -6 while its industry's price-to-book ratio sits at -18.31. For EAT, this valuation metric has been as high as -3.16, as low as -6.77, with a median of -4.84 over the past year.

Value investors will likely look at more than just these metrics, but the above data helps show that Arcos Dorados and Brinker International are likely undervalued currently. And when considering the strength of its earnings outlook, ARCO and EAT sticks out as one of the market's strongest value stocks.


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