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Home Stock Analysis McDonald’s stock nears 52-week low and looks incredibly valuable

McDonald’s stock nears 52-week low and looks incredibly valuable

by xyonent
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UK shares offer fantastic value at the moment, but investors should not be afraid to look across the Atlantic to find stocks trading at bargain prices.

This year, it has decreased by 16%. McDonald’s (NYSE:MCD) shares are near 52-week lows, and I believe the company’s stock is now offering great value, just like its burgers.

A lasting business

McDonald’s offers great value to its customers, and that resonates with consumers in almost any economic environment.

Generally, the biggest threat to this type of business is inflation. Rising costs, such as energy, staff, and raw materials, make it harder to maintain low prices for consumers.

This poses real challenges for McDonald’s and risks to its stock price, but it’s in a better position than its competitors to handle the threat of inflation.

Unlike other restaurant franchises, the company owns its properties outright and rents them to tenants, which gives it a revenue stream that isn’t dependent on food sales.

As a result, McDonald’s can keep food prices down in ways that its competitors can’t, even as costs rise — a huge advantage and a key reason the company’s business has proven durable.

Outlook

Stock market wisdom holds that what teenagers buy today is a good indicator of what will be popular 10 or 20 years from now. If that’s true, things are looking good for McDonald’s.

According to data from Piper Sandler, the company is the second-most popular food retailer among US teens, which is a very positive sign for the future, but it’s not the only one.

McDonald’s operating profit margin 2014-24


Created with TradingView

Over the past decade, McDonald’s has improved its operating margins and reduced its share count, which has contributed greatly to its earnings per share growth.

McDonald’s shares outstanding 2014-24


Created with TradingView

I expect the company to continue to use the cash it generates to buy back its own shares, and its continued ability to do so should help its future growth.

evaluation

Despite this, McDonald’s stock is cheap on a price-to-earnings basis: It typically trades at 25 times earnings but is currently trading at closer to 21 times earnings.

McDonald’s Price Earnings Ratio 2014-24


Created with TradingView

This is an unusually low level for the company, and I think it makes a very compelling case to buy the stock now, dramatically reducing risk for investors.

For McDonald’s stock to fall from here, one of two things would need to happen: first, the stock would trade at a lower P/E ratio, or second, earnings would decline.

Either is possible, but I think neither is likely, and the fact that the stock is already at an abnormally low P/E ratio means that any further decline from here would be historically surprising.

Similarly, it would be surprising to see earnings per share decline given the strength of the underlying business. The share repurchase program also reduces the likelihood of this happening.

American Values

like Microsoft and NVIDIA It has recently boosted the S&P 500. But investors should be careful not to overlook U.S. stocks that are unusually cheap right now.

I think the case for buying McDonald’s shares at today’s prices is very strong, and while it’s impossible to eliminate risk entirely, an unusually low P/E ratio goes a long way.

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