McDonald’s is the most popular fast food restaurant in the industry. Everyone goes to McDonald’s. Whether it’s the Big Mac, the milkshakes, salads, crispy chicken wraps, ice cream cones or the fries; customers flock to McDonald’s by the millions. Its drive thrus are often packed as customers drive in to get an early morning McMuffin or a late night snack. McDonald’s is an earnings giant with nearly $24 billion dollars in annual revenue.
The margins are incredible at McDonald’s. McDonald’s has a 20% profit margin, 40% gross margin and an operating margin approaching 30%. That’s better than competitors Yum Brands and Burger King. The king of fast food has been able to grow earnings at a remarkable 19% clip per annum. McDonald’s has made efficient use of its assets and capital earning a 15% return on assets and 36% return on equity.
Although McDonald’s has all of these things going for it; the stock is not cheap. The stock currently trades at just under $75 per share. This values the company at 16.5 times earnings. This is not a high multiple based on past growth but is high compared to future forecasts. McDonald’s is projected to grow earnings at a 10% clip over the next few years. That means the stocks trades at 1.6 time projected earnings growth.
The stock is currently paying a dividend of $2.44 per share. That's a very solid yield of 3.1%. There is no reason to run out and buy shares of McDonald's right now. The stock currently looks expensive to me at $77 a share. Patient investors may get a chance to buy shares of the fast food king on a pullback.
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