Should Investors Be Drawn to Cheap Valuation of McDonald's Stock?

McDonald’s Corporation MCD is currently trading at a slight valuation discount that could appeal to value-focused investors. The stock’s forward 12-month price-to-earnings (P/E) ratio stands at 23.02, below the restaurant industry average of 24.64, indicating that the market is taking a somewhat cautious stance toward the fast-food giant despite its scale and brand strength.

P/E (F12M)

From a performance standpoint, McDonald’s shares have held up relatively well. Over the past six months, the stock has gained 4%, outperforming the broader restaurant industry, which declined 2.1% over the same period. That said, MCD has lagged the S&P 500’s 13% rally, highlighting a degree of investor preference for higher-growth names. Meanwhile, several industry peers have struggled, with Chipotle Mexican Grill CMG, Kura Sushi USA KRUS and Restaurant Brands International QSR posting declines of 23.8%, 7.6% and 0.8%, respectively.

Price Performance 

This raises a key question for investors — is McDonald’s lower valuation a sign of short-term challenges or an opportunity to buy a global fast-food leader at a more attractive price?

Factors Aiding MCD Stock

McDonald’s continues to demonstrate the resilience of its global business model, even in a pressured consumer environment. In the third quarter of fiscal 2025, the company delivered solid global comparable sales growth, supported by gains across all operating segments. Management highlighted consistent traffic share gains in many key markets, underscoring the brand’s ability to outperform peers when execution around value, marketing and menu innovation is strong. This operational consistency reinforces the idea that McDonald’s remains a dependable compounder, which strengthens the argument that its current valuation may underestimate long-term earnings durability.

Another key positive is McDonald’s renewed focus on value architecture, particularly in the United States. The relaunch of Extra Value Meals and the broader McValue platform aims to restore affordability perceptions across core menu items that drive a large portion of transactions. Early results suggest improving customer engagement and traffic trends, especially as awareness builds. Importantly, management views these initiatives as structural rather than short-term promotions, which could help stabilize volumes and support steady cash generation over time — an attractive trait for value-oriented investors.

Internationally, McDonald’s continues to lean on its scale and localization strategy to drive growth. Markets such as Germany, Australia and Japan are delivering positive comparable sales and market share gains, supported by disciplined pricing, targeted innovation and localized marketing campaigns. Meanwhile, investments in high-growth categories like beverages and chicken position the company to capture incremental occasions and higher average checks. These initiatives suggest McDonald’s is not merely defending its base but actively laying the groundwork for growth, which could justify a re-rating if execution remains on track.

Factors Likely to Hurt MCD

Despite these strengths, near-term macro pressures remain a meaningful overhang. Management acknowledged that lower-income consumers continue to cut back on quick-service restaurant visits, with traffic declines persisting for nearly two years. While McDonald’s is gaining share within this cohort, absolute demand remains weak and executives expect these pressures to linger into 2026. This dynamic limits near-term upside to same-store sales and raises questions about how quickly value initiatives can fully offset broader affordability challenges.

Margin pressure is another concern that tempers enthusiasm around the stock’s cheap valuation. Elevated input costs, particularly beef, wages, and other food and paper expenses, continue to weigh on profitability. At the same time, aggressive value investments, including co-funding discounts with franchisees, create a near-term drag on margins. While management remains confident in long-term margin expansion, investors may need patience, as earnings growth could remain subdued until inflation eases and traffic momentum strengthens meaningfully.

McDonald's Growth Projection Encourages

In the past 30 days, the company’s earnings for 2025 and 2026 have increased 1 cent and 4 cents to $12.09 and $13.29, respectively. The Zacks Consensus Estimate for MCD’s 2025 and 2026 earnings per share indicates year-over-year increases of 3.2% and 9.9%, respectively.

The consensus estimate for revenues is pegged at $26.68 billion and $28.26 billion for 2025 and 2026, respectively, implying year-over-year improvements of 2.9% and 5.9%.

Wrapping Up

McDonald’s remains a stock worth holding for existing investors because its global scale, brand strength and operational discipline continue to deliver steady performance even in a challenging consumer environment. The company is gaining traffic share in key markets, executing well on value and menu innovation, and strengthening long-term positioning through initiatives like its value platform and international localization strategy, all of which support dependable cash generation and earnings durability.

However, fresh buying should be approached cautiously, as near-term headwinds persist. Consumer spending pressure, particularly among lower-income diners, is still weighing on overall demand, while elevated input costs and margin sacrifices tied to value investments are likely to keep earnings growth muted in the near term. Until traffic trends improve more broadly and margin visibility strengthens, McDonald’s looks better suited as a steady hold rather than an attractive entry point for new investors.

MCD currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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