Thursday 2 May 2013

Analysis of McDonalds

An American fastfood and real estate company

Company: McDonalds

Business: One of the biggest property holders in the world. Selling beverages and fast food especially hamburgers.

Active: World wide and are very strongly established in North America and Europe. Expanding into other parts. When I was in Delhi I walked into McDonalds there only to see what was on the menu. They always adapt to where they establish themselves. I guess that comes from that focus is in the long run on property and not on what they serve people in the establishment for keeping things running.

P/E: 18.5

The running P/E for McDonalds is 18.5 which could be good for a serious growth company. The price to book is however not so encouraging and for Graham this was not a good company to invest in. They have a good earnings per sale of 20% which is great due to the competition that they are supposed to have. Their book to debt is also good even though not classic for an American company that have much more book than debt. The growth in the last five years has been very low with only 3%. This is not much more than inflation and does not indicate a massive expansion rate. It would actually fit much more to property where usually you get 3-4% out per year. This gives according to Lynch a motivated P/E of 9 and according to Graham 15. McDonalds is then slightly too high already. They pay 2.8% dividends which is ok however it is almost 53% of earnings which can be considered too high but better that I get that money out then that they spend it on stupid things. They have very solid earnings quarter and quarter and can due to their presence be looked upon as a diversification on its own.

Conclusion: I would not buy it today since the P/E is too high. If I would have own the stock then I would have been stocking to it. It is a very interesting company to own and with the correct price level I would jump in directly as shareholder.

No comments: