McDonald's (NYSE:MCD) stock was one of the top performing stocks of the last year and a half. On January 20th, shares were up 37.38 percent over a one year span as the stock's low beta and the company's increasing earnings attracted investors. When the market flattened out at the beginning of 2012, McDonald's shares hovered around the $100 mark, reaching an all time high of $102.22. Its share price has tapered off over the past few months after shortcomings in international growth disappointed investors. In the last three months, the S&P 500 has outperformed MCD by over 10 percent.
There is no doubt that McDonald's is a market leader. The company has strongly outperformed its biggest competitors, Burger King (BKW) and Wendy's (NASDAQ:WEN), in almost every metric. McDonald's market cap is almost 14 times higher than Burger King's and over 50 times higher than Wendy's. McDonald's has maintained profitability and independence throughout its history while Burger King has been owned by a host of parent companies due to dwindling sales and Wendy's has struggled to stay in the black.
Recently, the fast food industry has had some bearish tendencies. Chipotle (NYSE:CMG) took a more than 20 percent hit in July after missing earnings and lowering forecasts of same store sales. Many of McDonald's competitors like Yum Brands (NYSE:YUM) are also missing expectations with international growth. 41 year McDonald's veteran Jim Skinner stepped down from his post of CEO at the end of June and his replacement, Donald Thompson, still needs some time to prove himself as a leader.
McDonald's is expected to grow its earnings per share by an average of 9.4 percent per year over the next five years, which is just below the market average. The stock's current P/E ratio of 16.6 is higher than the S&P 500's average of 14.9, but investors are willing to pay a premium for McDonald's strong brand and its stability in volatile markets. From a multiples standpoint, McDonald's shares appear to be properly valued.
Currently, I put a Hold recommendation on McDonald's shares. It's not a bad stock to own because of its blue chip track record and 3.16 percent dividend yield, but the stock's big advantage, its ability to outperform in a volatile market, does not look like it will apply in the next few months as the market has been incredibly boring as of late. If market forces change and we start seeing 80 plus basis point changes in the market on a daily basis, I would suggest picking up McDonald's shares, but until then, I believe its best for investors to hold off and invest in other industries.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.