Over the past six months, McDonald’s stock price fell to $273.75. Shareholders have lost 15.3% of their capital, which is disappointing considering the S&P 500 has climbed by 11.7%. This might have investors contemplating their next move.
Following the drawdown, is now the time to buy MCD? Find out in our full research report, it’s free.
Why Does McDonald's Spark Debate?
With nicknames spanning Mickey D's in the U.S. to Makku in Japan, McDonald’s (NYSE: MCD) is a fast-food behemoth known for its convenience and broken ice cream machines.
Two Things to Like:
1. Restaurant Growth Signals an Offensive Strategy
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
McDonald's sported 46,028 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 4.2% annual growth, among the fastest in the restaurant sector. Furthermore, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while McDonald's provides support.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
McDonald's has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 27.3% over the last two years.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last seven years, McDonald's grew its sales at a sluggish 4.2% compounded annual growth rate. This wasn’t a great result compared to the rest of the restaurant sector, but there are still things to like about McDonald's.
Final Judgment
McDonald’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 20.7× forward P/E (or $273.75 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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