Do You Still Have an Appetite for This Stock?
Yashu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It finally seems that McDonald's (NYSE: MCD) has freed itself from the clutches of the economic slowdown and sensed some relief. It had been a prey to the slowdown posting stalled growth from the past several months. But finally the company has given its investors something to cheer about. Its August sales may have missed analysts' expectations, but the growth still looks encouraging.
Looking Beyond Numbers:
Boosted by strong demand in China, Australia and Asia, McDonald’s sales at established locations grew by 3.7 percent in August as compared to 3.5 percent a year earlier. The same-stores sales data were marginally below the 3.9 percent which analysts’ were expecting. But nevertheless the street enjoyed the numbers posted by the company.
These numbers don’t tell us the clear story. This fast food restaurant operator has witnessed growth in almost all locations it operates except for the U.S and most of Southern Europe. In Europe, sales grew by a meager 3.1 percent and a 3 percent growth in U.S., both of which was way below analysts’ expectations. The UK benefited from the value offerings and promotions from the Olympic sponsorship, but it couldn’t cast its magic on the numbers as expected. The company benefited the most from Asia and Africa and posted growth numbers of 5.7 percent which were way above the 4 percent analysts expected.
Looking Ahead:
Recently, McDonald's has been focusing on its growth strategies. The management has noted three priorities that the company would be looking forward to in the near future:
- Menu Optimization,
- Modernization of Customer’s restaurant Experience, and
- Broadening their accessibility to reach out to more customers.
The company also plans to satisfy its customers by voluntarily revealing the calorie information on all of its products. The company believes that it will be the healthy and happy customers who would be returning again and again. After all the “Customer is the King” of any business. The company hopes that the calorie information will help customers make better choices about their diet.
Value for Money:
When it comes to valuation, McDonald’s, though not cheap, can be considered to be reasonable. It currently has a P/E (price to earnings) Ratio of 17.3. This can be considered cheap when comparing the likes of Yum!Brands (NYSE: YUM) which trade at a P/E of 20.9 and Dunkin Brands (NASDAQ: DNKN) having a P/E of around 75. Its dividend yield also comes at a luring 3.15 percent while comparing it to the 1.75 percent yield of Yum!Brands. Yum Brands has known to be expanding rapidly in emerging markets. YUM, the owner of KFC and Pizza Hut and is trying to build up a leadership position in countries like China where it senses huge potential. YUM looks good as a company, but is trading at too high for investors to enter at this point. On the other hand, McDonald's is a company which not just offers price appreciation, but also stability to its investors and surely looks to provide value in the long run.
Bottom-line:
The company has performed in the past and has a promising future. This stock surely has to be a long term bet in your portfolio and these minor misses shouldn’t matter to you as a long term investor. The fast food chain is constantly trying to improve its understanding of customers’ wants and needs and continues to scale up its operations by getting more accessible around the globe. McDonald's is one of the world’s pre-eminent brands having good growth prospects and trading at a very attractive price and could be considered as a safe haven for investors who are in search of stability in their portfolio.
I feel I do have an appetite for this stock, What about You?
yashup has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.
