McDonald's stock falls as CEO blames inflation

McDonald's stock plunges as CEO points to inflation

McDonald's CEO has an explanation for the slump: inflation. The market has others. While the company presents the correction as a cost accident, the numbers circulating in the debate point to something less cosmetic: a decline of around 20% in US sales volume, customers staying away, and a stock that has lost its aura as a defensive haven. The chain that for decades sold cheap and fast is no longer either.

There's a detail that sums up the changing times better than any chart: ketchup packets. They're no longer given out, or they're rationed, or they're simply gone. When cutting back on a sauce packet enters the conversation about a publicly traded company, the problem isn't just inflation. It's the value proposition.

What peine to McDonald's stock

The starting point is the share price drop and the official thesis of inflationary pressure. The nuance is that inflation explains margin compression, not necessarily customer flight. A fast-food business can pass on costs until customers compare prices and leave. And that's where the uncomfortable data comes in: in the US, sales volume may have contracted, and without volume there's no operating leverage.

The most repeated reading is that there's a general crisis in consumer spending in restaurants, retail, and food. Many companies in the sector applied aggressive price hikes after the pandemic and then found themselves with sticky inflation that prevents further increases without losing traffic. As pointed out in the thread, middle- and low-income consumers have been losing purchasing power for years; the high percentile holds up, the rest cut back. The K-shaped economy is also served on a platter.

Why has McDonald's lost 20% of US sales volume?

Because the customer who used to eat out every day can't anymore, and the one who could no longer wants to. The most strongly supported version combines three factors. The first is price: a chain burger now costs the same as one from a burger joint with better ingredients. The second is service, which has become slow, with cold, generic locations, without the play area that attracted families. Families haven't left: they've been driven away.

The third is cultural and has a drug's name. In the debate, it's suggested that weight-loss injections have changed part of the public's relationship with food. The conversation about their effects on restaurants is one of the most interesting economic threads in recent years, and in this case a reasonable doubt arises: if the drug is stopped, does the appetite return? The debate remains open and there's no definitive answer.

3.5% dividend and a P/E of 20: is the stock cheap?

It depends on what you compare it to. A calculation circulating in the debate puts the dividend yield near 3.5% if the decline continues, and the P/E around 20 times earnings in a sector considered defensive. Against its historical average of 22 to 25 times, it would trade at a discount; against energy, pharmaceutical, or banking stocks, where multiples of 10 to 12 are expected, it would still be expensive for what it offers.

The interest rate context is what matters. If, as one participant notes, the market anticipates further rate hikes in the coming months, a 3% dividend becomes secondary: uncertainty risk pays more elsewhere. And there's a structural problem of expectations: it's such a large company that growth is no longer taken for granted. As an expansion path, the opening of around 1,000 locations per year in China is mentioned.

The real estate business that sustains McDonald's

Here's the part that almost never makes the headline. As one participant argues, much of McDonald's business, like that of Mercadona, Inditex, or Lidl, is real estate: the locations, the land, the rents. If physical retail contracts, the value of those commercial assets suffers, and according to that thesis, the stock correction would be an early sign of a real estate market adjustment that hasn't yet reached prices.

It fits with the announced investment in the NEXT project, the bet on remodeling locations and gaining efficiency. It could be a good buy to hold for years if the stock keeps falling, according to the more patient theses. The opposite scenario starts from the premise that a defensive stock with rising rates and a modest dividend doesn't compensate for the risk. Between both extremes, there's no clear floor or ceiling.

Where does the price of fast food stand

The recurring complaint isn't about taste, it's about the bill. Small-sized products that, according to comments, now exceed 12 euros at a competing chain, big offers that appear just when sales are sluggish, and a widespread perception that you're paying restaurant prices for food that used to be the cheap option. Hygiene and estimulante ilegal were for years the argument against the local bar; if those two pillars weaken, the differential disappears.

There's no consensus on whether the correction is a bump or a cycle change. What does appear in several analyses is that the stock trades at a discount compared to its own decade, and that, according to one participant, ten years ago it was worth 100 dollars less than now. Some point out, as a disconcerting fact, that by population Spain would have more McDonald's than all of Mexico, almost double. If expansion depended on saturated markets, the map was already warning.