Arcos Dorados Holdings Inc-A scores 60 for management and 70 for moat. The management score rests on a return on invested capital of 6.9% and a gross margin of 12.3% — figures that describe a business earning a respectable return on what it employs. The balance sheet carries debt at 2.91x equity, which magnifies both the returns above and the risk beneath them.
The valuation runs on assumptions chosen to understate rather than flatter. Growth is modelled at 15.0% a year, below the 19.0% actually measured over the last decade — the model caps growth rather than extrapolating a good run forwards. The exit multiple assumed is 26.5x. That produces an intrinsic value of $32.07, a 10-CAP price of $8.03 and a payback time price of $12.68, with the value zone set at the highest of the three, $16.03. Today's price of $6.91 sits inside that zone.
The price sits inside the value zone, but the business scores 70 for moat and 60 for management. Cheap and good are different tests, and only one of them is passed here.
| Price | $6.91 |
| Market cap | $1.5B |
| P/E ratio | 5.7x |
| Return on invested capital | 6.9% |
| Gross margin | 12.3% |
| Debt to equity | 2.91x |
| Free cash flow yield | 1.0% |
| Growth rate used | 15.0% |
| Growth rate measured | 19.0% |
| Exit multiple assumed | 26.5x |
| Company | Moat | Buy price |
| Wendy's Co/The (WEN) | 38 | $15.30 |
| Shake Shack Inc. (SHAK) | 82 | $26.70 |
| CAVA Group, Inc. (CAVA) | 54 | $13.40 |
| Domino's (DPZ) | 67 | $207.33 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Arcos Dorados Holdings Inc-A rather than accepting ours.