Tuesday, 6 February 2024

Here’s Why McDonald’s Stock Dipped Today

by Rose White

Shares of fast-food giant McDonald’s (NYSE: MCD) fell on Monday after the company reported financial results for the fourth quarter of 2023. The results were solid, but management’s guidance for 2024 wasn’t up to the market’s expectations. As of 10:30 a.m. ET, McDonald’s stock was down about 3.5%.

Growth is cooling for McDonald’s

In 2023, the company enjoyed global same-store-sales (comparable-sales) growth of 9%, which is quite good for a company this large and mature. These strong sales numbers also substantially boosted the company’s profitability. For 2023, it had diluted earnings per share (EPS) of $11.56, which was a record high and up 39% year over year.

However, the outlook for McDonald’s in 2024 isn’t quite as cheery. Much of the company’s comparable-sales growth resulted from raising menu prices, which isn’t a lever it can pull all the time. The company consequently expects growth to slow to a low-single-digit rate in the coming year. Moreover, it expects its operating-profit margin to be flat in the coming year.

What should investors do now?

The news could certainly be worse for shareholders of McDonald’s. After all, modest sales increases and stable profit margins still point to good times ahead in the coming year.

However, investors have lately come to expect market-beating results from McDonald’s — it’s outpacing the S&P 500 over the past three years. But the company’s forecast for 2024 doesn’t instill confidence that it’s growing fast enough to continue its market-beating pace.

In summary, McDonald’s is still a strong business with a solid outlook. But investors wonder if it can be an above-average performer from here, which is a fair question.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.