Arcos Dorados Holdings Inc Stock Downgraded (ARCO)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Arcos Dorados Holdings (NYSE: ARCO) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, feeble growth in its earnings per share and generally disappointing historical performance in the stock itself.

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Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 1226.8% when compared to the same quarter one year ago, falling from $8.79 million to -$98.99 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, ARCOS DORADOS HOLDINGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for ARCOS DORADOS HOLDINGS INC is currently extremely low, coming in at 13.92%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -10.78% is significantly below that of the industry average.
  • ARCOS DORADOS HOLDINGS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, ARCOS DORADOS HOLDINGS INC reported lower earnings of $0.25 versus $0.54 in the prior year. This year, the market expects earnings to be in line with last year ($0.25 versus $0.25).
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 39.70%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1275.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's restaurants. Arcos Dorados has a market cap of $1.04 billion and is part of the services sector and leisure industry. Shares are down 33.8% year to date as of the close of trading on Tuesday.

You can view the full Arcos Dorados Ratings Report or get investment ideas from our investment research center.

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