Should You Buy McDonald's (MCD) Stock?

It hasn’t quite been the best time for retail restaurants, but some of the companies that have seen success recently have been the iconic brands that have fed loyal customers for decades. In fact, one of the hottest restaurant stocks on the market lately has been McDonald’s (NYSE:MCD) .

Indeed, this iconic American food chain has been on fire throughout 2017, and shares have gained more than 25% year-to-date. Nevertheless, such a steady gain—especially one that outpaces the overall retail sector by double digits—is enough to leave many investors wondering whether MCD has entered “overbought” territory.

So should investors be buying McDonald’s stock right now, or is it finally time for a pullback? Let’s check out some of the basic metrics first:

The first thing we need to talk about here is comps growth, the all-important metric that has been sluggish throughout the retail sector. In the most recent quarter, McDonald’s posted global comps growth of 4%, which was boosted by 11% comps growth in its “Foundational Markets” segment.

This market has owed its recent success to strength in Japan, and it underscores the international success that McDonald’s has also seen in its “International Lead Markets” and “High-Growth Markets” units. Domestically, comps were up about 1.7% in the most recent quarter, primarily because of All Day Breakfast and promotions.

This comps growth is in contrast to what might be a problem, which is the company’s continuously slumping total revenues. Of course, we have to remember the impact that refranchising has here. Revenues at company-operated stores declined 9.1% in the most recent quarter, but revenues at franchise-operated stores were up 5.3%.

And despite these slumping revenues, McDonald’s has been able to post earnings growth. In fact, our current consensus estimates would represent full-year EPS growth of nearly 12%. Looking ahead, the Zacks Consensus Estimate calls for earnings growth of 6.2% next year.

Nevertheless, investors will notice that MCD is only a Zacks Rank #3 (Hold). While the company has seen plenty of positive earnings estimate revisions, there have been a few negative revisions too. In fact, we only see 90% agreement on current-quarter revisions and just 70% agreement on next-quarter revisions. This can cause a stock’s Zacks Rank to lag.

Value-minded investors will also notice that McDonald’s is currently trading at about 24x earnings, which isn’t exactly incredible, but it is relatively on-par with its retail restaurant industry peers.

Now, let’s move into more technical analysis by taking a look at a couple of charts:

In the top chart, we see MCD’s price movement over the past two years. This is noteworthy because we see that, over this timeframe, the stock has undergone two significant rallies. As we can see, the current rally, which really started in November of last year, has now matched the previous rally in significance.

Is this an accurate indicator that the rally is over? Of course not. But we can also note from the second chart, which shows today’s intraday pricing, that MCD is now trading above its 50, 100, and 200 day moving averages. Again, not a perfect indicator, but this certainly does show that MCD is now trading in relatively-uncharted territory.

It will be interesting to see how MCD behaves at these levels. The next big test for the stock will come in late July when the company reports earnings again. Make sure to check back here for our analysis when that day comes!

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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