Thursday, January 28, 2010

McDonald's - Why Not?

I'm running a very simple screen - all companies growing EPS at 8% selling at below 25 fwd P/E. And with over $1B in market cap. Rationale being that I don't want to buy businesses that are shrinking, and also don't want to buy stocks are TOO overpriced. One of the top ones on the list - MCD. Surprising that the revenues are only $23B, but that's probably cause the company is mostly franchises - the actual sales of restaurants are much higher. Valuation is reasonable at 15x LTM P/E, and with strong history of expanding profits, I'm a believe they can keep growing at 10% earnings. And there's also 3% dividend, and pretty low beta - MCD hardly lost any value while the stock market tanked completely. I'm somewhat a believer in potential here to generate high risk-adjusted returns, although on absolute basis they might be comparable to the market.

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