Restaurant Stocks: McDonald’s No Longer King in Stock Market Sector
Admittedly, McDonalds Corporation (NYSE/MCD) was somewhat of a staple in my diet growing up as a teenager. I couldn’t get enough of those golden fries and loved the taste of the “Big Mac.” But that was then; today, I’m no longer drawn in by the “golden arches.” And the stock market appears to be feeling the same way, as the fast food operator looks to turn things around.
My approach to McDonald’s, so far, has been one of patience, but until the company can figure out what to do with its sliding revenues, I see better opportunities in the restaurant sector.
McDonald’s Struggling to Stay on Trend and Its Numbers Show It
While the share price is only slightly off from its 52-week high, I feel it has more to do with hope than the underlying metrics. The revenue picture is flat. McDonald’s reported a slight increase in 2013, but returned to negative growth in 2014. If you are waiting for a miraculous turnaround as it did years ago, I’d stop waiting. Revenues are estimated to contract 7.8% this year, prior to minuscule growth of 0.5% in 2016, according to Thomson Financial.
The stock market is losing hope of a near-term turnaround. McDonald’s has come up short in four straight quarters. The fourth quarter witnessed a 0.9% decline in global comparable sales. The weakness continued into February, as the metric fell 1.7%.
The problem with McDonald’s is the massive infusion of competition from both fast food and sit-down venues. While the company looks to alter its menu, I think it will take some time to correct, which will likely see the price stall in the stock market.
You simply have so many restaurants to select from. From gourmet burgers and sandwiches to Asian and Mexican, that even a giant like McDonald’s has its work cut out for it.
My teenager rarely eats at McDonald’s since the days of “Happy Meals” when he was younger. In fact, the majority of his friends don’t eat there. I think the stock market can see this trend.
Chipotle: One Successful Alternative Example to McDonald’s
A popular place for my kid is Chipotle Mexican Grill, Inc. (NYSE/CMG), which, with a stock market capitalization of $21.0 billion, is $72.0 billion smaller than McDonald’s.
The numbers tell the tale of success at Chipotle in the stock market. Revenues have grown from $2.73 billion in 2012 to $4.11 billion in 2014. The growth is estimated to continue at 17.5% this year, followed by 15.1% in 2016, based on Thomson Financial estimates. These metrics overwhelm the comparative growth at McDonald’s.
‘McDonalds Corporation vs. Chipotle Mexican Grill,
Jan. 2013-Present,’ Chart courtesy of StockCharts.com
The comparable sales show, even clearer, the sizzling growth at Chipotle. In the fourth quarter, comparable restaurant sales surged 16.1% at Chipotle, versus the 0.9% decline at McDonald’s. Revenues grew a whopping 27% at Chipotle.
The metrics show why Chipotle deserves a much higher valuation in the stock market. It’s all about growth in a competitive climate, and companies like Chipotle are bringing it, while McDonald’s flounders, looking for answers.