Over the past six months, McDonald’s stock price fell to $272.15. Shareholders have lost 10.1% of their capital, which is disappointing considering the S&P 500 has climbed by 11.4%. This might have investors contemplating their next move.
Given the weaker price action, 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 often determines how much revenue it can generate.
McDonald's operated 45,699 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 4.1% annual growth, much faster than the broader restaurant sector. Additionally, 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 25.9% over the last two years.
One Reason to Be Careful:
Same-Store Sales Falling Behind Peers
Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.
McDonald’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.7% per year.
Final Judgment
McDonald’s merits more than compensate for its flaws. With the recent decline, the stock trades at 20.1× forward P/E (or $272.15 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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