Fast-Food Chain Goes On Sale
The stock market hit a new all-time high last week.
But not every stock is having success.
Some are way down over the past month.
One of them is McDonald’s Corp (ticker: MCD), the popular fast-food chain.
Its stock price fell off a cliff over the last month and is down almost 20% from its high in early March.
Everybody loves McDonald’s, so what’s going on?
The company reported earnings a few days ago and beat on sales and earnings expectations.
But the stock fell when Chris Kempczinski, CEO of McDonald’s, said the macro environment for McDonald’s isn’t getting any better and might be getting worse.
Here’s a CNBC article discussing Mr. Kempczinski’s comments.
It’s been hard for companies like McDonald’s recently.
Higher gas prices from our war with Iran are leaving consumers with less money to spend dining out.
It also doesn’t help when consumer confidence just reached its lowest level going back all the way to 1952!
And last week, inflation jumped to 3.8%, its highest level since 2023.
So there’s a ton of bad news impacting McDonald’s right now.
But at these price levels, McDonald’s is an amazing deal.
First, the war with Iran isn’t going to last forever.
Gas prices will stay high for a bit, but once the war is resolved, they’ll come back down to normal levels.
Second, McDonald’s current price-to-sales ratio of 7x is the lowest it’s been since the COVID crash in 2020.
Do we really believe things are worse now for McDonald’s than during the early stages of the pandemic?
Of course not!
McDonald’s is also killing it right now with its financials.
Over the past 5 years, McDonald’s grew revenue by an average of 7% per year.
And it grew its EPS by over 13% on average each year over the past 5 years.
The fast-food giant is also incredibly profitable.
Over the last 12 months, McDonald’s profit margin was over 30%, which is near an all-time high for the company.
No other restaurant has a higher profit margin than McDonald’s!
And McDonald’s return on assets (ROA) of 15% is also one of the highest among restaurants.
In the short term, McDonald’s may still struggle as its customers continue to feel the pinch of higher gas prices and rising inflation.
But these are short-term problems, and if you’re looking for a great company for the long term, then McDonald’s should be on your list.
How worried are you about high gas prices and rising inflation?
Coach Parker
Category: Stocks
