We recently published a list of 8 Cheap Restaurant Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Arcos Dorados Holdings Inc. (NYSE:ARCO) stands against the other cheap restaurant stocks to buy.
Soaring ingredient prices, operating expenses, and tipping fatigue have pressured the restaurant industry over the last few years. According to a report by National Public Radio (NPR) in August, the price of grocery items in the U.S. has grown 19% since the mid-2020s, compared to the cost of restaurant meals, which have risen by nearly 24%.
This has resulted in a shift in consumer preferences as Americans become more cautious about where they spend their money. A survey by Lending Tree in May 2024 has revealed that 78% of Americans now consider fast food, which is integral to American culture, a ‘luxury’, forcing them to reassess their spending habits. Around 72% of the respondents said that they prefer having fast food during discount hours because of surge pricing in restaurants.
Despite the headwinds, it is not all lost for the restaurant industry, which continues to remain resilient, driven by the common desire among Americans to dine out. A critical factor that keeps the market thriving is how well it adapts to changing consumer preferences and price sensitivities. Several notable restaurant chains have been offering value deals, new menus, and discounts to lure customers during the holiday season.
Restaurants are also increasingly adopting automation in their quest for operational efficiencies and cost savings in an industry with thin margins. While the initial investment in technology is substantial, restaurant owners are hopeful that these upfront expenditures will enhance customer experience, reduce labor costs, and even be a solution to the challenges associated with labor shortages.
Despite facing temporary challenges, restaurant stocks have maintained strong performance this year. A restaurant ETF issued by AdvisorShares had gained 32.10% year-to-date as of the close of day on November 29, outperforming the broader market by just under six percentage points. According to data from the U.S. Census Bureau, food services and drinking places in October saw a 4.3% increase in sales compared to the same period last year.
The downturn in inflation is also a positive indicator for the industry. Consumer prices have eased down from the peak of 9.1% in June 2022 to 2.6% in October 2024. Interest rate cuts are also expected to boost the restaurant industry, as the low cost of borrowing would allow owners to go ahead with their expansion plans and also encourage consumer spending.
A close-up of customers ordering from a McDonald's restaurant in Latin America.
Our Methodology
We sifted through screeners to identify restaurant stocks with a forward P/E ratio of under 16 as of the close of the day on November 25, 2025. From there, we selected the 8 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 900 prominent hedge funds as of Q3 2024. The 8 cheap restaurant stocks have been ranked in ascending order of the number of hedge funds holding stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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.
Overall, ARCO ranks 4th on our list of cheap restaurant stocks to buy according to hedge funds. While we acknowledge the potential of restaurant companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ARCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
