According to George Leong, contributor to Profit Confidential, at the current level for the stock in McDonald’s Corporation, the top growth has been discounted into the price of the shares. But Leong believes you can still play the growth of McDonald’s through Arcos Dorados Holdings Inc.

“Arcos Dorados Holdings Inc. is the largest McDonald’s franchisee in the world based on system-wide sales and number of restaurants,” says Leong.

In the article “McDonald’s: Extending its Huge Success by Building a Global Cult Following,” Leong notes that Arcos Dorados operates or franchises 1,840 McDonald’s-branded restaurants in 20 Latin American and Caribbean countries and territories.

Trading at $14.06 as of the close of June 18, 2012, the stock is down 52% from its 52-week high of $29.43, reports Leong. According to his stock analysis, Arcos Dorados vastly underperformed McDonald’s since October 2011.

Leong speculates there is a mispricing of Arcos Dorados in the marketplace, probably due to the fact the stores are situated in Latin America.

Leong notes that the price/earnings to growth (PEG) ratio for McDonald’s is 1.64, versus the more attractive PEG of 0.90 assigned to Arcos Dorados.

“While McDonald’s has been on an impressive upward trajectory, my stock analysis suggests that Arcos Dorados represents a potentially more rewarding risk-reward situation,” says Leong.
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