8 Cheap Restaurant Stocks to Buy According to Hedge Funds

4. Arcos Dorados Holdings Inc. (NYSE:ARCO)

Forward Price to Earnings Ratio: 13.26

Number of Hedge Fund Holders: 19

Arcos Dorados Holdings Inc. (NYSE:ARCO) is a McDonald’s franchisee that operates over 2,140 restaurants in four geographical divisions: Brazil, the Caribbean, North Latin America, and South Latin America.

In October of this year, the company announced that it would exercise the option to renew the Master Franchise Agreement (MFA) with McDonald’s for another 20 years. The agreement will run from 2025 to 2045 and presents a significant opportunity for future growth. It is expected to include a royalty of gross sales of 6% for the first 10 years, 6.25% for the following 5 years, and 6.5% for the final five years of the agreement.

On November 13, Arcos Dorados Holdings Inc. (NYSE:ARCO) reported another strong quarter, with USD revenue reaching $1.1 billion – a new high for Q3. This was the 14th straight quarter when the guest count rose, driven by traffic growth throughout the region. This also resulted in a 32.1% increase in systemwide comparable sales. USD EBITDA was the second-highest for the third quarter. Net income stood at $35.2 million, or $0.17 per share, surpassing estimates of $0.16 per share.

Digital channel sales grew 16% compared to last year, representing 58% of systemwide sales in Q3. Delivery and drive-thru channels continue to offer an unmatched competitive advantage to Arcos Dorados Holdings Inc. (NYSE:ARCO) and had another robust quarter, contributing significantly to off-premise channel sales.

ARCO is among the best cheap restaurant stocks to buy according to hedge funds. Wall Street analysts have a consensus Strong Buy rating for the stock, with an average share price upside potential of 67%. According to Insider Monkey’s database for Q3 2024, 19 hedge funds had investments in the company.