Time To Buy McDonald’s Stock?
McDonald’s (NYSE: MCD) has bucked broader market trends, posting a 5% stock price gain in 2025 despite a 5% decline in the S&P 500. This resilience can be attributed to the company’s strategic initiatives, particularly its widespread adoption of artificial intelligence (AI) solutions across 40,000 locations. This digital push aims to streamline customer ordering and alleviate employee workload, echoing similar efforts by rivals like Starbucks stock (NASDAQ: SBUX).
McDonald’s business model, which generates most of its revenue through royalties and rent from franchisees, provides a stable source of high-margin income. This franchise model enables the company to maintain steady cash flows, facilitating regular stock buybacks, and dividend increases. Although McDonald’s 2024 results were lackluster, with 1% year-over-year system-wide sales growth and a 1% earnings per share (EPS) decline, analysts remain optimistic. They forecast EPS of $12.32 in 2025 and $13.33 in 2026, driven by the company’s resilience in economic downturns and its promising digital transformation.
The company’s stock looks like a good pick at around $310. However, we believe there are some minor concerns with MCD stock, which makes it risky in conjunction with its current valuation being somewhat high. We arrive at our conclusion by comparing the current valuation of MCD stock with its operating performance over the recent years, as well as its current and historical financial condition. Our analysis of McDonald’s along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a strong operating performance and financial condition, as detailed below.
How does McDonald’s’ valuation look vs. the S&P 500?
Going by what you pay per dollar of sales or profit, MCD stock looks slightly expensive compared to the broader market.
• McDonald’s has a price-to-sales (P/S) ratio of 8.5 vs. a figure of 3.2 for the S&P 500
• Additionally, the company’s price-to-operating income (P/EBIT) ratio is 18.6 compared to 24.3 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 23.4 vs. the benchmark’s 24.3
How have McDonald’s’ revenues grown over recent years?
McDonald’s’ Revenues have grown marginally over recent years.
• McDonald’s has seen its top line grow at an average rate of 3.8% over the last 3 years (vs. increase of 6.3% for S&P 500)
• Its revenues have grown 1.7% from $25 Bil to $26 Bil in the last 12 months (vs. growth of 5.2% for S&P 500)
• Also, its quarterly revenues declined 0.3% to $6.39 Bil in the most recent quarter from $6.41 Bil a year ago (vs. 5.0% improvement for S&P 500)
How profitable is McDonald’s?
McDonald’s’ profit margins are considerably higher than most companies in the Trefis coverage universe.
• McDonald’s’ Operating Income over the last four quarters was $12 Bil, which represents a considerably high Operating Margin of 45.7% (vs. 13.0% for S&P 500)
• McDonald’s’ Operating Cash Flow (OCF) over this period was $9.4 Bil, pointing to a high OCF-to-Sales Ratio of 36.4% (vs. 15.7% for S&P 500)
Does McDonald’s look financially stable?
McDonald’s’ balance sheet looks weak.
• McDonald’s’ Debt figure was $52 Bil at the end of the most recent quarter, while its market capitalization is $220 Bil (as of 3/28/2025). This implies a moderate Debt-to-Equity Ratio of 23.5% (vs. 19.0% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $1.1 billion of the $55.2 billion in Total Assets for McDonald’s. This yields a poor Cash-to-Assets Ratio of 2.0% (vs. 14.8% for S&P 500)
How resilient is MCD stock during a downturn?
MCD stock has been more resilient than the benchmark S&P 500 index during some of the recent downturns.
Inflation Shock (2022)
• MCD stock fell 15.0% from a high of $267.06 on 7 January 2022 to $226.87 on 10 March 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 28 October 2022
• Since then, the stock has increased to a high of $321.29 on 9 March 2025 and currently trades at around $310
Covid Pandemic (2020)
• MCD stock fell 26.1% from a high of $217.09 on 14 February 2020 to $160.33 on 3 April 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 2 September 2020
Global Financial Crisis (2008)
• MCD stock fell 22.9% from a high of $65.95 on 11 August 2008 to $50.86 on 5 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 16 March 2010
Putting all the pieces together: What it means for MCD stock
In summary, McDonald’s’ performance across the parameters detailed above is as follows:
• Growth: Neutral
• Profitability: Extremely Strong
• Financial Stability: Weak
• Downturn Resilience: Very Strong
• Overall: Strong
Although there are some risks associated with MCD stock, we think it is a good pick based on the above parameters.
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