- If you are wondering whether McDonald's at around US$282 per share still offers value, the key question is how its current price compares with a fair assessment of the business.
- The stock has inched up 2.1% over the past week and 2.4% over the past month, although it remains down 6.9% year to date and has returned 34.0% over five years.
- Recent headlines have continued to focus on McDonald's as a global consumer staple, with attention on how the brand is managing costs, pricing, and customer traffic in a cautious consumer backdrop. Investors have also been watching how the company positions its menu and marketing to support the franchise model and protect profitability across different regions.
- Against that backdrop, McDonald's currently scores 2 out of 6 on Simply Wall St's valuation checks. It is therefore worth looking at how different methods such as P/E multiples and discounted cash flow compare, and how an even more comprehensive view of valuation later in this article can help you weigh the full picture.
McDonald's scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: McDonald's Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model takes estimates of the cash McDonald's could generate in the future and discounts those cash flows back to today using a required return, to arrive at an estimate of what the business might be worth per share right now.
McDonald's latest twelve month Free Cash Flow is about $7.52b. Using a 2 Stage Free Cash Flow to Equity model, analysts and Simply Wall St project annual Free Cash Flow out to 2035, with analyst inputs used for the nearer years and Simply Wall St extrapolations applied further out. For example, projected Free Cash Flow for 2028 is $9.68b, with discounted values provided for each year from 2026 through 2035.
On this basis, the model arrives at an estimated intrinsic value of $244.63 per share. Compared with the recent share price of around $282, the DCF output indicates the stock is about 15.4% above this estimate, which in this model suggests McDonald's is trading on the expensive side.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests McDonald's may be overvalued by 15.4%. Discover 46 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: McDonald's Price vs Earnings
For a consistently profitable company, the P/E ratio is a useful snapshot of how much investors are paying for each dollar of earnings. It ties the share price directly to the bottom line, which is often the anchor for long term returns.
What counts as a "normal" P/E depends on what investors expect from earnings and how risky they think those earnings are. Higher expected growth or lower perceived risk can support a higher multiple, while slower growth or higher risk usually points to a lower one.
McDonald's currently trades at about 23.1x earnings. That is above the Hospitality industry average of around 20.3x, but below the peer group average of roughly 49.5x. To go a step further, Simply Wall St estimates a proprietary "Fair Ratio" for McDonald's of 28.5x. This Fair Ratio aims to reflect what a reasonable P/E might be once factors like earnings growth, profit margins, market cap, industry, and identified risks are all accounted for, which can be more tailored than a simple comparison with broad peer or industry averages.
Comparing the current P/E of 23.1x with the Fair Ratio of 28.5x indicates that McDonald's is trading below that tailored estimate.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your McDonald's Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, a simple tool on Simply Wall St's Community page that lets you connect your view of McDonald's business story to a set of revenue, earnings and margin forecasts. These then roll up into a fair value you can compare with the current share price to decide whether the stock looks attractive to you.
A Narrative is your story behind the numbers, where you spell out why you think factors like expansion plans, technology spending, consumer demand or cost pressures might play out a certain way, and tie that directly to projected financials instead of treating the forecast as a black box.
Because Narratives on the platform are refreshed when new information such as news or earnings is added, you can see how fair value estimates evolve and compare different views that other investors hold, from more cautious McDonald's Narratives that point to fair values around US$238.97 per share to more optimistic ones closer to US$331.29. You can then decide which story and valuation range fits your own expectations.
For McDonald's, however, we’ll make it really easy for you with previews of two leading McDonald's Narratives:
Fair value: US$331.29
Price vs fair value: about 14.8% below this narrative fair value at the recent US$282.25 share price
Revenue growth assumption: 5.23% a year
- Focuses on international expansion, particularly in emerging markets, as a key source of future revenue growth.
- Assumes technology, digital ordering, and an asset light franchise model support higher margins and strong free cash flow.
- Highlights risks from pressure on lower income traffic, inflation in key inputs, competition, and execution on large tech investments.
Fair value: US$238.97
Price vs fair value: about 18.1% above this narrative fair value at the recent US$282.25 share price
Revenue growth assumption: 4.86% a year
- Views McDonald's as a high margin, wide moat business with strong returns on invested capital and disciplined capital allocation.
- Applies several valuation methods, including DCF, earnings growth, and multiple based approaches, many of which point to a rich valuation.
- Flags modest projected revenue and EPS growth, plus a relatively low dividend yield versus history, as reasons to treat the current price with some caution.
If you want to see how other investors connect these stories to their own numbers, you can review the full range of community views through See what the community is saying about McDonald's.
Do you think there's more to the story for McDonald's? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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