When I was growing up, I did not look at companies as stocks. I knew of the stock market, but I did not really understand the whole concept. It wasn't until high school, and more intensely in college that I began focusing on companies not only as places of business, but publicly traded entities. With that being said, I do not think there is a single American who has not heard of McDonald's (MCD).
McDonald's is currently trading around $97. With the company's earnings per share of $5.27, the stock has a price to earnings ratio of 18.9. While some investors like these ratios to be lower, I prefer it to be 15 or under, the company still has a lower average than the rest of the restaurant industry at 25.8. This includes the company Yum! Brands (YUM), which is the parent company of fast food chains such as KFC, Pizza Hut, and Taco Bell. Other competitors to McDonald's are Starbucks (SBUX) and privately held Burger King Holdings.
When an investor is looking into a stock to purchase, one thing that is considered is the beta. The beta for McDonald's is ridiculously low at 0.16, making the stock a faction as volatile as the market. Part of this reason could be because of the fact that McDonald's has not post a loss in over 10 years. While some people may not think that is a lot, let's keep in mind that there were two recessions in that time frame. In addition to the company's stability, McDonald's offers a dividend to investors. With a payout of $2.80 per share, the stock has a dividend yield of 2.80%.
At this rate, McDonald's has a higher yield than a 10-year Treasury. Another added attraction is the fact McDonald's is still able to grow as a company. Even being as big as it is, the company still has a growth rate of 9.8% from the same quarter last year. Even though this is slightly smaller than the industry, as well as market, it is a good growth number for a company of its size. I think one of the biggest advantages that McDonald's has is that it is recognized globally and that the company can put a restaurant in nearly any location and make a profit. The international aspect of the company still allows for it to grow at the rate it does while continuing the domestic customer base.
Two of the newer competitors that challenge McDonald's in growth are Chipotle Mexican Grill (CMG) and Panera (PNRA). Chipotle currently has an amazing annual revenue growth of 24% while Panera is no slacker with 18%. McDonald's still crushes these companies in sales at $27 billion, compared to $2.27 and $1.8 billion, respectively. In addition, each have a much higher forward price to earnings ratio of 47.9 and 28.7 compared to McDonald's forward ratio of 17.2. The higher ratios are seen due to the growth prospects of these companies. Although these companies are big now, it is only a matter of time before we see how each will do once growth slows down. Once this occurs, and it always does, then we will be able to see how each reacts and how that will affect the profits and prices of these companies.
Some of the bigger news recently surrounding this industry is the announcement of Burger King reentering the public market. While this could cause a stir amongst the industry as a whole, I do not believe it will affect McDonald's too much. Even if Burger King was to take a little more of the market share than it in years past, there is far too much ground for any company to gain to catch McDonald's. The real companies that should worry about this the most would be Wendy's (WEN), Jack In The Box (JACK), and Yum! Brands. These are companies more in line of where Burger King will be and will need to surpass first before the company can make a run for the top. To add to these companies frustration, Burger King is also testing out delivery methods in certain markets. If you can have a pizza delivered to your door, why not a burger? I think this is a great idea and I am surprised that a company like McDonald's hasn't already done it. Depending on the success of this, I would not be surprised to see other food chains do the same.
Ultimately, I think that McDonald's is too far ahead of the competition to fall behind at any point soon. When the market started to hint towards healthier food options, the company was already there with products. Even on the company's website, consumers can obtain nutritional information proving that it can offer healthier alternatives. As the world continues to become more health conscious, these are the things that a company will need to focus on in order to succeed. The great thing about this company is that when the economy is going well, people will eat at McDonald's. When the economy is not going well, people will still eat, sometimes more often, at McDonald's.