What Happened?
A number of stocks jumped in the afternoon session after investors continued to pile into value-oriented names amid growing valuation concerns. This shift reflected growing caution over high valuations within the technology and artificial intelligence (AI) spheres. As market participants reassessed risk, they reallocated capital from growth-heavy indices, like the Nasdaq, to companies in areas like industrials and financials, perceived to be more reasonably priced. Contributing to the positive momentum, markets remained hopeful that a prolonged 40-day government shutdown would be over. The U.S. Senate approved a compromise funding package, which was pending a vote in the House. The potential end to the shutdown brought a sense of relief to markets.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Modern Fast Food company Sweetgreen (NYSE: SG) jumped 3.2%. Is now the time to buy Sweetgreen? Access our full analysis report here, it’s free for active Edge members.
- Traditional Fast Food company Arcos Dorados (NYSE: ARCO) jumped 4.9%. Is now the time to buy Arcos Dorados? Access our full analysis report here, it’s free for active Edge members.
- Modern Fast Food company Shake Shack (NYSE: SHAK) jumped 2.5%. Is now the time to buy Shake Shack? Access our full analysis report here, it’s free for active Edge members.
- Traditional Fast Food company Jack in the Box (NASDAQ: JACK) jumped 3.4%. Is now the time to buy Jack in the Box? Access our full analysis report here, it’s free for active Edge members.
- Traditional Fast Food company Dutch Bros (NYSE: BROS) jumped 4.2%. Is now the time to buy Dutch Bros? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Arcos Dorados (ARCO)
Arcos Dorados’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock gained 7.4% on the news that the company reported mixed second-quarter results that saw profits beat expectations but revenue fall short. The master franchisee for McDonald's in Latin America and the Caribbean posted earnings of $0.11 per share, easily surpassing analyst estimates of $0.08. However, total revenue of $1.14 billion missed Wall Street's expectations, growing just 2.8% year-over-year. While same-store sales, which track performance at restaurants open for at least a year, grew a solid 12.1%, this represented a significant slowdown from previous periods. The company's operating margin also declined to 5.5% from 6.7% in the same quarter last year. Investors appeared to weigh the strong profit beat against the revenue miss and decelerating growth, leading to a muted reaction for the stock.
Arcos Dorados is flat since the beginning of the year, and at $7.57 per share, it is trading 14% below its 52-week high of $8.80 from November 2024. Investors who bought $1,000 worth of Arcos Dorados’s shares 5 years ago would now be looking at an investment worth $1,650.
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