McDonald's (NYSE:MCD) is the largest restaurant chain on the planet today, with 34,000 locations in 119 countries around the world. But that hasn't sheltered the fast-food giant from falling sales and increased competition both in the U.S. and abroad. In September, McDonald's suffered its worst same-store sales decline in more than a decade. Shares of McDonald's have fallen nearly 6% in the past six months as a result. Below, Motley Fool contributors discuss what it would take for them to regain confidence in McDonald's stock and ultimately its future success.

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Source: The Motley Fool.

Sam Mattera: McDonald's is ripe for an activist shareholder -- if the right one were to get involved, the fast food giant could become a great investment.

Activist hedge fund Pershing Square took a stake in McDonald's back in 2005 and urged the company to consider restructuring. The crux of Pershing's proposal centered around McDonald's real estate and its company-owned stores -- McDonald's corporate-owned stores have historically underperformed those run by franchisees, and its valuable real estate portfolio is obscured by its restaurant business. Separating the two, Pershing argued, could unlock significant shareholder value. However, a rising stock price made it difficult for Pershing to exert much influence -- the hedge fund exited with a profit, but achieved few of its goals.

Given the stock's recent underperformance, McDonald's investors are likely to be far more sympathetic to an activist campaign this time around. A proposal similar to Pershing's could send shares higher -- it worked wonders for Burger King.

Since its return to the public markets just over two years ago, Burger King shares have rallied more than 100%. As a restaurant, Burger King has improved, but more significant has been the divestiture of nearly all its company-owned stores. Today, Burger King corporate owns only a few dozen stores -- its business is centered primarily around real estate and franchise agreements.

McDonald's management is unlikely to adopt such a strategy on its own, but might consider it if prompted by an activist. McDonald's still owns nearly 20% of its restaurant base, leaving it open to temporary operational setbacks. A business free from these restaurants should result in more stable cash flows, and put more focus on the value of its real estate holdings.

Andrés Cardenal: McDonald's recently announced a 0.5% decline in global comparable-store sales during October, while the accumulated decline in the first ten months of the year was 1%. Consumers are losing their appetite for McDonald's lately, and this is a major reason for concern when it comes to analyzing a position in the company. Even if McDonald's is a financially solid company with a consistent track-record of dividend growth, upside potential will most likely remain subdued until the company manages to reverse the situation.

McDonald's is planning to reduce the complexity of its menu to improve service quality and speed. The company is also betting on increased customization to better fit the needs and tastes of different customers. In addition, McDonald's is trying to improve communication with its customers, especially when it comes to the much sensitive area of product quality and transparency regarding ingredients.

Many of these initiatives seem to be inspired on the explosive success that Chipotle Mexican Grill is producing in the fast-casual restaurant category. Analyzing the main industry trends and growth drivers of the competition is the smart thing to do, but there is no guarantee that McDonald's can implement these ideas successfully and improve sales.

A sustained turnaround in sales would be a major game changer for McDonald´s, and I would seriously consider an investment in the fast food giant if the company can regain its traction among consumers. However, that's quite a big "if."

Tamara Walsh: A leadership shift at the top is one of the key things that would prompt me to invest in McDonald's today. Don Thompson, McDonald's current CEO, took the helm more than two years ago. Yet, the company's stock price has gained a meager 5% during his reign, compared to a 51% gain in the S&P 500 over the same period. Last month, the burger chain posted a 30% decline in net income for its third-quarter amid slower restaurant traffic in all of the company's major markets.

In an apparent effort to revamp McDonald's image, McDonald's is changing its organizational structure within the United States. However, that doesn't include bringing a fresh face into the role of CEO.

Under the new order, franchisees will have more control over their local markets in respect to menu and marketing decisions. The company hired Mike Andres earlier this year to step in as McDonald's president of U.S. operations. While Andres will oversee these changes, I believe Mr. Thompson should be held more accountable for McDonald's recent missteps.

With Thompson calling the shots McDonald's is in the process of simplifying its menus, creating customizable food options that appeal to local tastes, ramping up social media campaigns and installing mobile payment options within stores. It will take time and money to get these initiatives right, and they certainly won't restore shareholder value over night.

If Thompson's latest strategy is unable to attract new customers and lift sales, it could cost him his job. Nonetheless, many Wall Street analysts believe the company will give Thompson another year to turn things around, according to Reuters. Until then, I think investors are better served elsewhere.

 

Andrés Cardenal has no position in any stocks mentioned. Sam Mattera has no position in any stocks mentioned. Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends 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.