McDonald's May Need One More Dip Before A Substantial Upside Run Commences
McDonald's Corporation (NYSE: MCD) has been trying the patience of its shareholders for quite a while now, with little net positive returns over the last several years. Will the next dip in prices be the last major dip for quite a while?
One take on McDonald's stock chart points to that being the case. Let's take a look at the chart and the fundamentals for McDonald's to get the whole picture for this potential investment.
What The Bulls See In McDonalds
Some very reasonable valuation metrics:
An enterprise value of $106 billion versus a market capitalization of $93.19 billion
A price-to-sales ratio of 3.42
Net profit margins of 17.34 percent that spin off over $3.52 billion in annual positive levered free cash flows
Good management effectiveness metrics:
Return on assets of 14.05 percent
Return on equity of 32.07 percent
A decent current ratio of 1.52
An annual dividend rate of 3.5 percent
Related Link: Meaningful Change Is Underway At McDonald's, Says Stephens
What The Bears See In McDonald's
Some rich valuation metrics:
A price-to-book ratio of 7.32
Some sketchy balance sheet metrics:
$2.08 billion in cash versus $15 billion in total debt
A debt-to-equity ratio of 116.18 percent
The Technical Take On McDonald's Shares
Technicians are calling McDonald's shares a perfect example of a trading range stock, if you look at the monthly chart for MCD. The upper edge of the range is set by the series of monthly highs from 2011, 2013 and 2014. The lower edge has been set by the monthly closing pivots in 2011 and 2012.
Right now, they note that McDonald's may well be on the way down to the lower edge of the channel at around $86 - $87. That support range not only represents the lower edge of the trading channel, but it also should be approximately where the long-term uptrend line comes into play for McDonald's.
Overall
It looks like the fundamental struggles of McDonald's may continue to weigh the stock down in the short term. However, if the called for decline to $86 - $87 takes place, there may be waves of buying coming in from both the value crowd as well as the technical crowd.
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