Problems and Opportunity With the McDonald’s Corporation (MCD) of Latin America

Over in the United States there are about 14,000 U.S. McDonald’s locations with a population of 312 million people (or 1 restaurant for every 22,285 people). For Latin America to have the same restaurant-to-people ratio as the United States, Arcos Dorados would need to build and operate an additional 24,078 new restaurants. Of course a little over 26,000 total Latin American McDonald’s restaurants might be overly optimistic growth estimate. Even if Arcos Dorados were to build half of that or even just a forth, that could leave the possibility of 6,000-12,000 new restaurants worth of growth ahead for a company with only 2,000 restaurants as of today.

Sports catalysts

Another reason to like the company is the future catalysts that could be the impetus for a large share price move up. In June 2014 and August 2016, Brazil will play host to the FIFA World Cup and the Summer Olympics respectively. As with previous World Cup and Summer Olympics, both of the events will receive major sponsorship by McDonald’s. Complete with a massive TV, radio and internet advertising campaigns, local events, restaurant promotions and sporting event venue retail exclusivity, the McDonald’s brand will be plastered everywhere in Brazil and across the region.

Foolish bottom line

Although Arcos Dorados is far riskier than simply investing in McDonald’s Corporation (NYSE:MCD) itself, that risk is justified given the possible rewards. With the potential for much greater returns over McDonald’s and the stock down 45% since the 2011 IPO, today’s prices present investors with an opportunity to buy the company’s growth in Brazil and elsewhere at a substantial discount. It is for those reasons that I purchased a small position in Arcos early last week. And if Latin American currencies strengthen, protesters’ grievances are addressed and we get closer to the World Cup and the Summer Olympics, that could be just that thing needed to alter the downward trajectory of this supposed ‘no-brainer’ investment opportunity.

The article Problems and Opportunity With the McDonald’s of Latin America originally appeared on Fool.com and is written by Matthew Luke.

Matthew Luke owns shares of Arcos Dorados. The Motley Fool recommends McDonald’s. The Motley Fool owns shares of Arcos Dorados and McDonald’s. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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