Top 10 Restaurant Stocks to Buy Under $20

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

Share Price: $7.22

Number of Hedge Fund Holders: 21

Arcos Dorados Holdings Inc. (NYSE:ARCO) is a McDonald’s franchisee operating or franchising more than 2,140 McDonald’s-branded restaurants. Its operations are divided into four geographical categories: Brazil, the Carribean, the North Latin America division (NOLAD), and the South Latin America division (SLAD).

Analysts believe that Arcos Dorados Holdings Inc.’s (NYSE:ARCO) stock provides an attractive entry point. The company holds a competitive market edge due to its restaurant portfolio. More than half of its restaurants are free-standing units, which provide a mix of takeout, drive-thru, and delivery service options and boost restaurant sales.

On October 1, 2024, the company announced that it would exercise its option to renew its Master Franchise Agreement (MFA) with McDonald’s for another 20 years starting in 2025. This agreement has strengthened the company’s strategic footing, which stems from the geographic diversification of its solid restaurant base throughout Latin America.

On April 1, BTG Pactual initiated coverage of Arcos Dorados Holdings Inc. (NYSE:ARCO) with a Buy rating and a $10.50 price target. Analysts have bullish sentiments for the stock, and their median price target of $7.22 implies an upside of 45.43% from current levels.

Brennan Asset Management stated the following regarding Arcos Dorados Holdings Inc. (NYSE:ARCO) in its Q4 2024 investor letter:

“Arcos Dorados Holdings Inc. (NYSE:ARCO): Rough 2024…Shares Substantially Undervalued: ARCO produced solid operating results throughout 2024, but negative currency movements, including a near freefall in the Brazilian Real (over 20 percent decline), drove investors to dump ARCO shares. As we noted in our Q3 letter, ARCO announced that it renewed its master franchise agreement (MFA) with McDonald’s (MCD) at terms that were better than many anticipated. While we won’t rehash the entire ARCO thesis (see our 2023 Q2 and Q3 letters for more color), we continue to believe that ARCO is a unique asset (the license to operate essentially all MCD restaurants from Mexico south) that was turbocharged by COVID’s aftereffects. During and after COVID, a large percentage of restaurants closed and there was rapid adoption of drive-through and delivery sales. ARCO disproportionately benefited, given its larger share of free-standing stores. ARCO has a strong balance sheet (including substantial real-estate value), strong incremental returns on capital and a substantial growth opportunity. Brazil faces macro challenges, and further currency weakness is distinctly possible. That said, ARCO has a history of achieving same[1]store sale growth above inflation rates and Brazil has some of the highest delivery penetration rates and digital adaptation rates in all of LATAM. Furthermore, there is no reason for ARCO not to move its listing from New York to Sao Paulo and greatly neutralize the reporting impact from currency fluctuations. We strongly believe ARCO is mispriced at current levels.”