Back to the Future Investing
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The DeLorean and the Big Mac
What if I told you that time-travel was possible? What if I said that I befriended a crazy scientist driving around in a substantially modified DeLorean? And what if I presented you with the option of traveling back to 1970, just as McDonald’s (NYSE: MCD) is about to celebrate its 1,500th restaurant opening? We would find your younger self and tell him or her to invest in McDonald’s. We’d then we return to the present day to count all of the money we made. Since January 1970, McDonald’s stock price has risen 26,461.66% (not to mention 36-years’ worth of dividend checks). “Awesome! When do we leave?! Where did I put my wallet?!” would likely be your response.
Unfortunately for us investors, time travel isn’t possible. Or if it is possible, I have yet to meet a crazy ‘Doc’ with a time-traveling sports car. But I do potentially have the next best thing to my Back to the Future investing scenario. A company in a similar position to 1970 McDonald’s. That company is Arcos Dorados (NYSE: ARCO).
Arcos Dorados is often referred to as the McDonald’s of Latin America (sorry, I promised in a previous article that I wouldn’t use that phrasing anymore… sorry). It is referred to as the McDonald’s of Latin America for a very good reason … because it literally is the McDonald’s of Latin America. Arcos Dorados (which means ‘Golden Arches’ in Spanish) is the exclusive McDonald’s franchisee of Latin America.
As of December 2011, Arcos Dorados owns or operates 1,840 restaurants. Of those, 1,358 are owned directly by Arcos Dorados, with the remaining 482 being franchised (owned by McDonald’s, operated by Arcos Dorados). These restaurants are located in 20 South American and Caribbean countries that have a combined population of over half a billion people. These figures make Arcos Dorados the single-largest McDonald’s franchiser in the entire world, representing nearly 7% of McDonald’s total restaurants worldwide.
Over the past 52 weeks, shares of Arcos Dorados have fallen about 30%. This is despite very impressive year-over-year numbers that the company reported. From Dec. 31, 2010, to Dec. 31, 2011, Arcos Dorados added a total of 101 new McDonald’s restaurants (79 company-owned, 22 franchised). During that same period, the company saw a 13.7% systemwide same-store sales growth and a 21.1% increase in total revenues. With its price to earnings growth ratio of 1.14 and its 1.62% dividend yield (fairly large for a high-growth company), Arcos Dorados seems very undervalued.
With only 1,840 restaurants (a similar restaurant count to McDonald's of 1970), Arcos Dorados’ growth story has only just begun. McDonald’s in the United States, with a population of over 300 million people, currently has 14,098 US restaurants (as of Dec. 31, 2011). With more than a half a billion people in Arcos Dorados' Latin American regional footprint (the 20 countries they operate in), you can see that Arcos Dorados’ 1,840 restaurants is just the beginning. I foresee a long and prosperous future ahead for Arcos Dorados.
WhichStocksWork owns shares of Arcos Dorados. The Motley Fool owns shares of Arcos Dorados and McDonald's. Motley Fool newsletter services recommend Arcos Dorados and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
