Many investors like to look for value in stocks, but this can be very tough to define. There is great debate regarding which metrics are the best to focus on in this regard, and which are not really quality indicators of future performance. Fortunately, with our new style score system we have identified the key statistics to pay close attention to and thus which stocks might be the best for value investors in the near term.

This method discovered several great candidates for value-oriented investors, but today let’s focus on Arcos Dorados Holdings, Inc. (ARCO Quick QuoteARCO - Free Report) as this stock is looking especially impressive right now. And while there are numerous reasons why this is the case, we have highlighted three of the most vital reasons for ARCO’s status as a solid value stock below:

Forward PE for Arcos Dorados

Easily one of the most popular readings for value investors, the forward PE ratio shows us the current price of a stock divided by the full year earnings. Generally speaking, value investors like to see this ratio below 20, though it can vary by industry.

Right now, ARCO has a forward PE of just 13.81, which means that investors are paying $13.81 for each dollar in expected Arcos Dorados earnings this year. Compared to the industry at large this is pretty favorable as the overall space has an average PE of 23.8 in comparison.

Price to Forward Sales for Arcos Dorados

One of the most underrated ratios for value investors is the price/forward sales metric. This ratio shows investors how much they are paying for each dollar of revenues generated. In other words, a lower number is better here while a price to sales ratio of 1 means that you are paying one dollar for each dollar in sales.

With a P/S ratio of 0.42, ARCO investors are paying 42 cents in stock price for each dollar of revenue generated by the company. Compare this to the industry average of 1.35, and it is safe to say that ARCO is undervalued compared to many of its peers on this important metric.

ARCO Earnings Estimate Revisions Moving in the Right Direction

The solid value ratios outlined in the preceding paragraphs might be enough for some investors, but we should also note that the earnings estimate revisions have been trending in a positive direction as well. Analysts who follow ARCO stock have been raising their estimates for the company lately, meaning that the EPS picture is looking a bit more favorably for Arcos Dorados now.

Over the past 60 days, 2 earnings estimates have gone higher compared to no downward revisions for the full year, while we are also seeing 2 upward revisions with no downward revisions for the next year time frame too.  These revisions have helped to boost the consensus estimate as 60 days ago ARCO was expected to post earnings of 15 cents per share for the full year though today it looks to have EPS of 42 cents for the full year.

Bottom Line

For the reasons detailed above, investors shouldn’t be surprised to read that we have ARCO as a stock with a Value Score of ‘A’ and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

So if you are a value investor, definitely keep ARCO on your short list as this looks to be a stock that is very well-positioned for gains in the near term.

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