Investors Choke on McDonald's

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

McDonald's (NYSE: MCD  ) has been on a sizzling, burger-slinging tear for a long time now, but today some investors choked on its quarterly results. Sometimes good isn't quite good enough.

Mickey D's fourth-quarter net income rose 11% to $1.38 billion, or $1.33 per share. Operating income increased 14% to $2.12 billion. Total sales increased 10% to $6.82 billion.

The fast-food giant's torrid growth in same-store sales didn't stall out, either. Global comps increased by 7.5%. Broken out by geographic region, McDonald's boasted 7.1% comps growth in the U.S., 7.3% in Europe, and 6.9% in Asia/Pacific, Middle East, and Africa.

McDonald's isn't just excelling, it's expanding. It mentioned plans to allocate $2.9 billion in capital to open more than 1,300 new McDonald's locations, as well as give makeovers to 2,400 existing Golden Arches in 2012.

Given the stock's drop today, investors are giving a cool reception to the financial tidings. Possible reasons include a $0.03 earnings boost that wasn't generated from operations, as well as a 30-basis-point decline in margins linked to rising costs on food and other items. 

Long-term McDonald's investors should take a deep breath and tune out the slight negativity right now. Beyond McDonald's impressive sales growth (including in beleaguered, uncertain Europe), the fact that it's dedicating financial resources to expand to meet demand is a pretty amazing turn of events in the current economic climate. Although overexpansion has been a concern for many retailers and restaurant chains, recent years' amazing performance suggests McDonald's management simply isn't prone to stupid mistakes.

Seriously, you've gotta ask the sellers what's to complain about. Mickey D's compares favorably to many restaurant stocks. Consider sad penny stock Cosi (Nasdaq: COSI  ) ; rewind all the way back to the year ended January 2000, and it's never reported an annual profit in all that time. Ruby Tuesday (NYSE: RT  ) may not be that bad off, but it recently warned that this year will be challenging, given expected weak comps and higher advertising costs.

Still, McDonald's stock has run up 34% in the last 12 months, and it's not lacking in formidable challengers. Wendy's (Nasdaq: WEN  ) has been redoubling its competitive efforts after ditching the staggering Arby's chain, and having lost that albatross, it has a shot at being a stronger contender. Already, Wendy's has caught up with the No. 2 burger giant Burger King in U.S. sales, and it's been revamping its menu.

McDonald's is a solid hold for its shareholders, but even with today's weakness, it doesn't look like a great time for potential investors to buy. Put McDonald's on your watchlist, but wait for the shares to become more of a bargain before buying in.

Sometimes it's hard to get excited about the growth of a stalwart company like McDonald's, and that's reasonable. If you're looking for a growth story from companies flying below analysts' radar, I invite you to read The Motley Fool's special free report: "The Stocks Only the Smartest Investors Are Buying." In the report you'll uncover companies that the big hedge fund guys would probably love to invest in, but can't. The good news is you can. The report is free today, and you can access it by Clicking Here.

Alyce Lomax does not own shares of any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1764378, ~/Articles/ArticleHandler.aspx, 10/23/2016 6:14:24 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:01 PM
MCD $113.93 Up +3.36 +3.04%
McDonald's CAPS Rating: ***
COSI $0.03 Down +0.00 +0.00%
Cosi CAPS Rating: *
RT $3.10 Up +0.06 +1.97%
Ruby Tuesday CAPS Rating: *
WEN $10.96 Up +0.09 +0.83%
Wendy's CAPS Rating: ***