Why Investors Should Gobble Up McDonald’s Stock

It was just a few short years ago when McDonald’s (NYSE: MCD) was suffering and the stock was hurting. Then CEO Don Thompson was trying to turn the company image around amidst a growing interest in healthier fast food and low prices. His efforts failed to materialize and McDonald’s stock continued to suffer.

But in stepped current CEO Steve Easterbrook and he has McDonald’s firing on all cylinders once again. In the 3 years since he took over, McDonald’s stock has easily outperformed the S&P 500 and continues to return value to shareholders.

But with a large run up in the stock price, is McDonald’s stock now overvalued or should investors gobble up this stock because it has room to grow?

Why Investors Should Buy McDonald’s Stock

Even with the huge run up McDonald’s stock has experienced, there is still room for more growth. Here is why. While every other fast food establishment and other casual dining restaurant is struggling to grow customer traffic, McDonald’s is doing so with ease.

This has happened for a number of reasons. First, McDonald’s hit gold when it introduced its all-day breakfast menu. Next, they added premium burgers to their menu which is also a hit.

The result is customers coming in droves to take advantage of these new menu features. As an investor, you might be thinking that they still need to do more in order for the stock price to keep rising.

You are right with this thought and McDonald’s is making headway into driving more traffic to its stores.

They are doing this in a few ways which include the following:

  • Mobile ordering
  • Mobile payments
  • Delivery alternatives
  • Customer experience

Each one of these will work on driving more traffic to the stores and as a result, revenue for the company.

But there is still another area that will have a major impact on McDonald’s stock price. That is the Dollar Menu. When it is was first introduced, it was a hit but quickly became stale. Former CEO Don Thompson tried rebranding the Dollar Menu and missed badly. This was the final straw that led to his ouster.

Current CEO Steve Easterbrook also took a swing at the Dollar Menu and also missed. But he didn’t miss as badly. As an optimist, I feel that they are getting closer to finding what works again with the Dollar Menu and when they do find it, sales will skyrocket.

Is McDonald’s Stock Overvalued?

So while McDonald’s stock is hot right now, any smart investor has to question whether or not the stock is overpriced. The short answer is no. Yes it has had a beautiful run in the past couple of years, but it is not overvalued. In fact, one could argue that $200 a share is the next stopping point for this stock.

As an investor, I would be buying at these levels. Especially with the recent sell off the stock has had.

Final Thoughts

At the end of the day, McDonald’s stock is one investors should be buying up. The company is hitting targets on all fronts and as their new initiatives take hold and they figure out the Dollar Menu, investors will continue to be rewarded both through price appreciation and through dividends.

This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.

Research MCD