The Hudson Institute recently found that between 2006 and 2011, 10 million fewer servings of french fries were served at top restaurant chains. Maybe those sobering food documentaries finally made a dent. That being said, McDonald’s Corporation (NYSE:MCD) is (understandably) in an uncomfortable position, playing by a changing set of rules.
The fried potato vendor has just reported its first decline in same store sales in nine years–add that to a 4.6% decline in stock over the last year, and you have some faithful McDonald’s investors scratching their heads, wondering if this is a minor glitch in the fast-food machine or a sign of the times.
Analysts are touting the rise of the fast-casual dining experience as one the culprits for Ronald the Clown’s latest McWoes, and the market appears to concur. Chipotle Mexican Grill, Inc. (NYSE:CMG), the maker of semi-organic $7 burritos, saw an increase in same store sales, with fourth quarter profits rising 6.8% to the height of $61.4 million. Yet for some investors, the news wasn’t good enough to put to rest the idea that the stock was overvalued and its P/E was unfavorable. Then Peter Lynch spoke up.
Last week Peter Lynch gave the stock an 87% favorable rating per Nasdaq Guru Analysis, pointing to the upside of it’s P/E. Investors should examine the P/E (36.34) relative to the growth rate (33.81%) based on the average of the 3, 4 and 5 year historical EPS growth rates for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for the CMG (1.07) is considered “O.K.”
Also to the benefit of Chipotle lovers is the company’s planned aggressive action. According to the Dow Jones Newswire, Chipotle is increasing it’s advertising and catering efforts, and CFO Jack Hartung foresees a possible raise in menu prices as early as mid-2013.
In similar news, the pricy baker and café Panera Bread Co (NASDAQ:PNRA) reported stellar same store sales as well, receiving a 34% improvement in its fourth quarter income, and appears a comparably beneficial choice for value investors. As of December 2012, the company’s stock held a P/E ratio of 26.97. The stock also greatly outperforms any of it’s would-be competitors, riding a steady climb upward since 2009. Though some experts point to it’s sudden growth as a reason for caution, Peter Lynch said
“This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth of of over 50% may be unsustainable. The EPS growth rate for PNRA is 85.27%, based on the average of the 3, 4 and 5 year historical EPS growth rates, which is considered too fast.”
Having grown to an amazing size itself, McDonald’s is also having difficulty strengthening its reach outside the U.S. market, in which it had a meager gain of 0.9%. January sales in Asia and the Middle East were down around 9.5%, with a global sales drop of 1.9%. Investors are waiting to see if a company in 119 countries and serving 68 million daily still has the room to both grow and innovate further.
The article News Flash: People Want Better Food, Market Nods originally appeared on Fool.com and is written by Jean-Marc Saint Laurent.
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