Arcos Dorados Holdings Inc. (NYSE:ARCO), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$10.10 and falling to the lows of US$8.20. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Arcos Dorados Holdings' current trading price of US$8.28 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Arcos Dorados Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Arcos Dorados Holdings

What's The Opportunity In Arcos Dorados Holdings?

Arcos Dorados Holdings appears to be overvalued by 27% at the moment, based on our discounted cash flow valuation. The stock is currently priced at US$8.28 on the market compared to our intrinsic value of $6.52. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Arcos Dorados Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Arcos Dorados Holdings generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 43% over the next couple of years, the future seems bright for Arcos Dorados Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in ARCO’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe ARCO should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ARCO for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for ARCO, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Arcos Dorados Holdings, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Arcos Dorados Holdings and you'll want to know about them.

If you are no longer interested in Arcos Dorados Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.