Arcos Dorados stock could be months away from a rebound, meaning interested investors should have opportunities to buy at even lower prices, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

When I put Arcos Dorados (ARCO), the largest McDonald’s (MCD) franchisee in the world and the largest restaurant operator in Latin America, on my watch list back on August 16, 2011, I said I loved the stock, but would sure like to buy it a bit lower.

Well, it’s down 45% from that August price—having tumbled 17% on Friday, when its first-quarter earnings missed estimates by 6 cents a share. The company reported earnings of 12 cents a share when analysts were expecting 18 cents. Earnings for the first quarter of 2011 were 15 cents a share.

Is it time to bite into a Latin American Big Mac? (The stock is down 0.63% today, May 7, as of 3:40 p.m. New York time.)

The huge tumble on Friday is intimately related to the reason I decided not to buy in August 2011. The shares then traded at 31 times trailing 12-month earnings.

Turns out that the company’s earnings haven’t been keeping up with expectations, though. Look at what the company has earned over the four quarters of 2011: instead of falling with earnings growth, the stock’s P/E has climbed because earnings have repeatedly disappointed. Using actual 2011 earnings and the August 12, 2011 share price, the price-to-earnings ratio climbed to 46.4.

Or rather, that would have been the price-to-earnings ratio at the end of 2011 if the stock hadn’t been falling for most of the last part of 2011. From the September 8, 2011 high to May 3, the shares were down 63%.

The almost 17% drop on Friday, after the earnings miss, wasn’t so much an overreaction as a sign of some investors finally giving up on the shares.

So do you want to buy here? I recommended the stock as one of my six stocks from elsewhere just before the company reported.

Of course, you never buy just because something you fancied is down in price. It could actually be down for a good reason. And might even be headed lower.

So what’s the story with Arco Dorados’ earnings miss? Some of it is a result of the slowdown in Brazil’s economy. Comparable-store sales climbed 11.6% for the company as a whole, but just 5.5% for Brazil.
Some of it is a result of the drop in the value of Brazil’s currency. Last year, in the first quarter the real traded at 1.63 to the dollar. In the first quarter of 2012, the exchange rate was 1.82 to the dollar.

That 10.4% decline in the real meant that revenue and earnings that Arcos Dorados earned in Brazilian reais translated into 10.4% fewer dollars in 2012 than a year ago. (The company also took a $6.6 million foreign-exchange loss in Venezuela.)

Up Next: Those problems in Brazil are significant...

Tickers Mentioned: Tickers: ARCO, MCD