With 2023 roughly half over, McDonald's (MCD -0.42%) is standing out as an unusually strong stock. The fast-food giant's shares have jumped over 20% through late June, making it the sixth-best performer on the Dow.
Wall Street has been thrilled to see Mickey D's generate strong customer traffic and market-share gains in the growing fast-food industry. Its financial trends are even better, partly thanks to the combination of cost cuts and menu price increases.
But have investors missed their chance to buy this high-performing business after its rally this year? Let's look at some reasons why the stock could still deliver strong returns from here.
Winning share
It hasn't been hard for fast-food companies to post higher sales these days. Increased demand for away-from-home dining is lifting the industry, and rising menu prices are helping accelerate revenue trends, too.
But McDonald's is performing better than most of its peers. Comparable-store sales were up a blazing 13% in the most recent quarter, outpacing other successful companies like Chipotle.
The chain is seeing a healthy balance between rising customer traffic and increased spending. These wins were powered by fundamental improvements to metrics like food quality, customer service, and order delivery times.
McDonald's is also keeping up a steady stream of innovative product launches to drive traffic.
"Running great restaurants is fundamental to our business momentum," CEO Chris Kempczinski said in a statement.
Tasty profits
Buying McDonald's stock also delivers the type of financial strength that's rare to see in any industry, let alone fast food. Operating profit margin is marching toward a record high of roughly 45% of sales.
AAPL Operating Margin (TTM) data by YCharts
Even dominant global tech and consumer products giants like Apple and Procter & Gamble can't come close to that result. McDonald's benefits from its heavily franchised operating approach that delivers a steady stream of rental and fee income, yet the company's success is ultimately tied to the success of its restaurant partners in feeding fast-food fans every day.
Good value
As you might expect, investors must pay a premium for McDonald's business right now. Shares are valued at more than 9 times annual sales compared to less than 5 for Procter & Gamble and below 8 for Apple. Sticking in the same industry, Chipotle stock is valued at roughly 6 times annual revenue.
It's possible that McDonald's valuation will come back down near its peers, especially if economic growth rates slow further. Yet the company also has some attractive growth avenues ahead as more demand tilts toward drive-thru and delivery orders.
Maintaining its dominant position in these niches over time should help keep sales trends rising while lifting profitability higher, too. Chipotle executives cited these positive factors in its own push into drive-thru services, after all.
More cautious investors might want to simply watch McDonald's stock in case a broad market drop delivers an attractive discount. However, you're likely to still earn solid returns over many years by keeping this leading business in your portfolio. Perhaps start with a small initial purchase if you're worried about the elevated valuation. But it's not too late to buy McDonald's stock today.
