McDonald's (MCD -0.89%) business has been setting new records in 2021, but its stock returns haven't been as impressive. The fast-food giant's shares keep losing ground with the market as investors chase more exciting growth niches.

That narrative could start changing with Mickey D's upcoming earnings report that's likely to show a gathering rebound despite pockets of weakness related to COVID-19.

Let's take a closer look at that announcement set for Wednesday, July 28.

Four people sitting around a table in a fast-food restaurant.

Image source: Getty Images.

Customer traffic

McDonald's last quarterly update contained plenty of encouraging growth news, with comparable-store sales returning to gains and global sales finally surpassing 2019 levels following a tough pandemic year. Investors are looking for an even more dramatic rebound this week, mostly because the year-ago period covered some intense social distancing periods. Most investors who follow the stock are looking for sales to jump over 60% to $5.5 billion.

The two main worries heading into the second half of the year are further COVID-19 lockdowns and rising competition. Look for CEO Chris Kempczinski to address both issues this week. A few markets might see pressure thanks to rising case numbers, but the core U.S. division should be a standout. Customer traffic might even return to positive territory.

As for competition, McDonald's is hoping its drive-thru dominance, plus rising customer satisfaction, will help it fend off a flood of new entrants in the delivery and mobile ordering niche.

Cost cuts

McDonald's is aiming to return to industry-leading profitability by late 2021, with operating margin again reaching toward 45% of sales. Several trends are supporting that push, including cost cuts, rising prices, and a tilt toward more premium menu offerings. The delivery niche is helping, too, as people spend far more on an average home order than they do during a trip to the restaurant.

MCD Operating Margin (TTM) Chart

MCD Operating Margin (TTM) data by YCharts

Wins in these areas should keep cash flow surging, which gives McDonald's plenty of flexibility to spend aggressively on the business while returning cash to shareholders through dividends and stock buybacks. Both channels likely grew this quarter. The recent 3% dividend increase, in fact, marked McDonald's 40th consecutive raise.

Looking ahead

The chain doesn't issue a short-term sales outlook, but investors will get clues about growth by following trends like comparable-store sales, customer traffic, and digital ordering volumes. Longer-term, it is factors like customer satisfaction, cash flow, and operating margin that ultimately determine whether McDonald's can keep outgrowing its industry. Each of those metrics has been heading in the right direction in recent quarters and is likely to improve again for Q2.

That's why investors might want to consider buying shares of this high-performing business. While Wall Street is currently more interested in flashier growth niches like tech, McDonald's has been quietly adding to its formidable competitive assets. A buy-and-hold approach to a business like that should pay off for patient investors, especially considering the stock's underperformance throughout the past pandemic year.