Is It Time to Buy McDonald's?

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In January, McDonald's (NYSE: MCD  ) shares hit a 52-week high of $102.22. What a difference six months makes.

The fast-food giant's shares have cooled considerably; in May, waiting for a better price on Mickey D's stock seemed like the smartest idea, given some uncertainties. First and foremost, CEO Jim Skinner will retire this summer, leaving his successor Don Thompson with an extremely tough act to follow.

Furthermore, McDonald's same-store sales growth in May left a lot to be desired. Worldwide comps growth rose 3.3%, disappointing analysts' expectations. Worse, growth in McDonald's Asia, Middle East, and Africa segment decreased 1.7%. Such a disappointment is significant, because Asian market sales potential is highly coveted by investors. The current situation in Europe is a worrisome component for many companies as well, including McDonald's.

The specter of slower growth in Asian markets, particularly China, has also had a negative impact on shares of fast-food rival Yum! Brands (NYSE: YUM  ) , which has long showed impressive success with Chinese expansion.

Of the basket of restaurant stocks to choose from, there are far less appetizing options than McDonald's. Take Ruby Tuesday, which is duking it out in the difficult mid-market casual restaurant segment; its latest annual results showed weak sales and a lackluster outlook. Ruby Tuesday's founder and CEO plans to resign, too.

Hardcore bargain-hunters would probably also consider McDonald's a shares far more reasonably priced than, say, Chipotle (NYSE: CMG  ) and Panera (Nasdaq: PNRA  ) . McDonald's trades at 14 times forward earnings, whereas Chipotle's forward price-to-earnings ratio is 36 and Panera's is 22. In a mind-boggling aside, fellow fast-food burger slinger Wendy's (NYSE: WEN  ) currently trades at a whopping 22 times forward earnings, which sounds like far too high a price to pay for a company that's unlikely to show the kind of impressive growth Chipotle and Panera are capable of delivering.

McDonald's has been a stellar stock to own. It's a solid company for the long term, and its price today is certainly a much better bargain than it was in January. Then again, McDonald's tough operational comparisons with past stellar years, the macroeconomic uncertainty, and Skinner's approaching retirement all add a little extra risk right now. Potential Mickey D's investors may still get a better deal on the shares if they wait patiently through the coming months.

The macroeconomic climate is tough in many parts of the world, but our analysts have identified 3 American Companies Set to Dominate the World. McDonald's is one of them. To find out more, follow the link for your free report.

Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. Motley Fool newsletter services have recommended buying shares of McDonald's, Chipotle Mexican Grill, and Panera Bread and creating a bear put spread position in Chipotle Mexican Grill. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On June 11, 2012, at 9:34 PM, 123spot wrote:

    I feel like we're on a big game hunting mission and I'm lovin it. Great analysis on how when to bag the big one. Spot

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Related Tickers

10/21/2016 4:01 PM
MCD $113.93 Up +3.36 +3.04%
McDonald's CAPS Rating: ***
CMG $411.94 Up +6.84 +1.69%
Chipotle Mexican G… CAPS Rating: ****
PNRA $196.86 Up +1.54 +0.79%
Panera Bread CAPS Rating: ****
YUM $86.97 Up +0.77 +0.89%
Yum! Brands CAPS Rating: ****