Should You Avoid McDonald's Stock, Even Near a 4-Year Low?

McDonald's stock has reached a multiyear low, but that doesn't necessarily mean it's a bad investment. The fast-food giant's shares tumbled to under $230 per share, the lowest price in several years, back in September. Since then, the stock has dropped 9% this year, while the S&P 500 index has gained 7%. Despite this downturn, should long-term investors consider buying McDonald's stock at this price?

McDonald's relies heavily on its vast network of franchises, which operate over 46,000 restaurants worldwide. The company collects rents and royalties based on a percentage of sales from these outlets, making customer traffic and spending crucial to its performance. However, McDonald's has faced challenges in recent quarters. U.S. same-store sales grew only 0.8%, primarily due to higher spending, while guest counts dropped. In the third quarter, U.S. sales remained weak, with comps declining 0.2%.

On a global scale, McDonald's comps increased by 1.5%, which could indicate that the company's international presence helps offset challenges in the U.S. market. However, broader economic factors are also at play. Inflation has squeezed the U.S. consumer, leading to reduced spending on dining out and increased reliance on fast-food options like McDonald's. As economic conditions improve, consumers may return to eating at McDonald's due to its affordable prices, fast service, and widespread availability.

Another positive aspect for long-term investors is McDonald's historically attractive valuation. The company's price-to-earnings (P/E) ratio stands at 22, which is lower than its 10-year median multiple of 26. This suggests that the stock may be undervalued compared to its historical norm.

While McDonald's stock is trading near a four-year low and facing some short-term challenges, it could still be a worthwhile investment for long-term investors looking for companies with strong global presence, attractive valuation, and the potential to benefit from improving economic conditions.