Investors have much different expectations around Starbucks' (SBUX 0.18%) and McDonald's (MCD -0.19%) earnings prospects at the moment. McDonald's stock is near all-time highs following an impressive streak of growth into early 2023. The coffee giant, meanwhile, is seeing solid gains but facing rising competition as consumers' preferences tilt toward delivery and drive-thru.
Against that backdrop, let's compare the two restaurant giants to see which is the better fit for your portfolio right now.
Latest growth trends
McDonald's is faring a bit better in the growth arena. Sales this past quarter were up a blazing 13% year over year, marking an acceleration compared to late 2022. This growth was broad-based, too, across all of its geographic markets. McDonald's also achieved a solid balance between rising prices and higher customer traffic. Management says the success is directly attributable to improvements in core areas like customer satisfaction and fast preparation. "Running great restaurants is fundamental to our business momentum," McDonald's CEO Chris Kempczinski said in a late April press release.
Starbucks had a more mixed first-quarter growth result, with sales up 11% year over year in the U.S. market and 7% across its international segments. That boost was also a solid acceleration over the previous quarter and reflects success at recent initiatives aimed at reconnecting with coffee fans. "This momentum was made possible by the investments we are making in stores and partners," CFO Rachel Ruggari said in early May.
McDonald's is more profitable
Investors who prioritize profit margins will find more to love about McDonald's stock. The fast-food giant's operating profit is now comfortably above 40% of sales, a record high for the business. It has traditionally boosted that metric through a heavier tilt toward franchising, but recent gains have all come from factors like cost cuts, price increases, and growth. Combined with the steady flow of franchise and royalty fees, these wins help make McDonald's one of the most profitable companies on the planet.
SBUX Operating Margin (TTM) data by YCharts
Starbucks isn't setting profit records, but it does have a good chance at expanding profitability. Management is pushing into more rural store locations, for example, and leaning more on drive-thru and delivery options. These factors helped push profit margin up to 15% of sales last quarter, compared to 12% a year ago. Further wins along these lines would likely support a sharp rally for the stock.
The better price
If you're looking for a deal, Starbucks stock might be more up your alley. Shares are trading for about 3 times sales right now, down sharply from the price-to-sales ratio of 6 that investors were paying during the high-growth phases of the pandemic. McDonald's, meanwhile, is about as expensive as it has ever been at over 9 times annual revenue.
That premium makes some sense given its high and rising profit margin, dominant market position, and resilience through a wide range of selling conditions. But Starbucks has these competitive assets to some extent, as well, and so investors might consider buying this stock at a relative discount compared to the fast-food giant.
