Furthermore, with the largest market share in the Latin American fast food space at 10% –3x as big as its nearest competitor in Burger King — Arcos Dorados has a head start in the race to saturate the market. Throw in 300+ McCafes and 1,800+ of the company’s highly profitable Dessert Centers and they have strong peripheral growth plays as well. Generating 26% and 8% of Arcos Dorados’ Transactions and Revenues respectfully, the company has successfully dialed in on the cultures sweet tooth.
Finally, with a storefront expansion goal of 5-10% annually, Arcos Dorados plans on growing Revenues by 10-15% each year. Considering that 47% of the company’s stores have been re-imaged, they are banking on the McDonald’s success story of the last decade, when the store’s improvements lead to a bolstered image and increased Revenues.
A Cheap, Profitable, Dividend Paying Railroad
Valuations: Reporting a Price-to-Book ratio of only 0.72, investors skepticism towards Chinese stocks can clearly be seen. However, Guangshen has very real components (railroads, rail cars, equipment, etc.), that all have tangible value. Furthermore, the company’s 3.2% dividend is very real as well, and has grown over the last 4 years. With a Payout Ratio of 47%, the company’s future is not at risk by paying the dividend, and should be able to support further increases with its Revenue growth.
Catalysts: While this one could be seen as a true value play being so far below its Book Value, it also has many catalysts on its side as well. Despite slowing growth in China, the country is still growing at an amazing pace, regardless of what was expected by economists. With that, China will continue to need coal for its upcoming growth plans, along with many other basic building materials. And that only factors in Guangshen’s freight operations. Pair that up with the millions of passengers the company shuttles along each year and the growth runway is clear to see. Regardless of its one child policy or not, a growing Chinese population is still prevalent, only leading to future passenger train growth.
A Few Foolish Final Thoughts
While we may not know which Chinese companies are cooking their books, we can’t point fingers at Baidu and Guangshen for simply being based in the same country. With valuations coming in at tremendous levels, on the growth side for Baidu, and the value side for Guangshen, I don’t believe the current opportunity can be passed up.
As for Arcos Dorados, I firmly believe that it is only a matter of time before the company’s EPS catches up with its booming revenue growth. They will follow in McDonald’s footprints and will expand their leadership position in Latin America — all while raising their dividends. With CAPS calls made on all 3 stocks currently, I see their current prices as buying opportunities for investors seeking to diversify with long-term international investments.
The article 3 Dominant International Opportunities originally appeared on Fool.com and is written by Josh Kohn-Lindquist.
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