McDonald’s Corporation (MCD), The Wendy’s Co (WEN), Burger King Worldwide Inc (BKW): Whose Burger is Best? Valuing the Biggest Burger Companies

PEG Ratio

The PEG ratio (simply the Price/Earnings to Growth Ratio) helps to show the relationship between the price of a stock, the earnings per share, and the growth rate of the company. This metric is particularly useful when comparing companies side by side with different PE ratios and different growth rates. When analyzing the ratio, analysts typically classify companies with a PEG lower than 1 as associated with undervaluation, while companies above 1 tend to be overvalued. Now, let’s take a look at the graph for the burger companies:

One of the reasons that I like the PEG ratio so much is because, just as in this graph, it shows us another angle that the previous two metrics do not show. This chart illustrates a recent skyrocketing of McDonald’s Corporation (NYSE:MCD) PEG ratio (mathematically, this must be due to either lower growth rates or a higher PE ratio – I’ll spare you the time and spoil it for you; their PE ratio TTM has remained relatively flat at about 18-19 the past few months, leaving only decreases in growth as the culprit.) This reveals that decreases in growth at McDonald’s Corporation (NYSE:MCD) could lead to the company being potentially either less undervalued (than the other ratios may suggest) or potentially overvalued. As for The Wendy’s Co (NASDAQ:WEN), their 0.6 PEG shows potential undervaluation, and Burger King Worldwide Inc (NYSE:BKW)’s (hidden by the graph) value of 1.7 shows possible slight overvaluation.

The Foolish bottom line

The numbers throughout the burger market have fluctuated recently, with strong US numbers but weakening European and Asian numbers revealed in the latest reports for these fast food restaurants. Depending on each company’s domestic vs. international stake, the results may vary. However, hopefully these few metrics helped you learn something about all three burger giants, as well as three methods to value companies in an industry in the future.

The article Whose Burger is Best? Valuing the Biggest Burger Companies originally appeared on Fool.com and is written by Michael Nolan.

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