McDonald's currently trades at $313.09 per share and has shown little upside over the past six months, posting a middling return of 2.7%.

Does this present a buying opportunity for MCD? Or is its underperformance reflective of its story and business quality? Find out in our full research report, it’s free.

Why Does McDonald's Spark Debate?

With nicknames spanning Mickey D's in the U.S. to Makku in Japan, McDonald’s (NYSE: MCD) is a fast-food behemoth known for its convenience and broken ice cream machines.

Two Things to Like:

1. Restaurant Growth Signals an Offensive Strategy

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

McDonald's sported 44,113 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 3.8% annual growth, among the fastest in the restaurant sector. Additionally, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while McDonald's provides support.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

McDonald's has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 27% over the last two years.

One Reason to be Careful:

Same-Store Sales Falling Behind Peers

Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

McDonald’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.9% per year.

Final Judgment

McDonald's has huge potential even though it has some open questions, but at $313.09 per share (or 24.5× forward P/E), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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