McDonald's (MCD): fair value

Fair-value band

The normal range for this name runs from $264 (cheap) to $337 (expensive); it is now priced at $243.

That is 2.4σ below this name's own normal premium.

Is McDonald's undervalued?

Cheap, relative to its own history. McDonald's trades at $243, 16% below the fair value this model estimates, but it has habitually traded 3% above fair value, and today's gap is 2.4σ below that norm, wider than the range it normally trades in, so the verdict is Cheap: priced further below its own norm than usual, not just below the model's fair value.

Diligence checklist

8 pass · 1 fail · 2 no data

• PASSCash actually collected from profit, last 12 months: 116%XBRL · McDonald's gets $1.16 of real cash for every $1 of reported profit which means profits are real and not just numbers on paper. That's a good sign.
• PASSGap between paper profit and real cash: -4.3%XBRL · McDonald's's "profit on paper" and "cash in the bank" gap is small enough to pass.
• FAILDebt compared to one year of cash earnings: 3.13xXBRL · It would take 3.13 years of earnings to clear what McDonald's owes, net of the cash it holds. Past three years I stop treating a name as something I would buy, and past four I stop work altogether. This sits in between: not disqualifying, but the lenders have more say in how this business is run than the shareholders do.
• PASSHow much more it earns on capital than that capital costs: +15.91ppXBRL · Return on capital is far higher than what that capital costs, so every dollar McDonald's puts to work turns into much more than a dollar of value. A +16 point gap is wide: reinvesting is genuinely worth doing here, which is what makes growth valuable rather than merely expensive. The gap is no wider than it was at the start of the window.
• PASSStock sold by executives and directors on the open market, last 6 months: $0.0MEDGAR · Nobody running McDonald's sold a single share on the open market in the last 6 months. That is the alignment I want: the people with the most information about the business are keeping their money in it. A further $3.3M went out under pre-planned 10b5-1 schedules, which I don't count: those sales are set up months ahead and say nothing about what management thinks today. Options being exercised, and shares held back to cover the tax on them, are not sales and I don't count them either.
• PASSHow long the CEO has run this company: 6.9 yearsTEXT · McDonald's's chief executive has held the job since November 1, 2019, which is 6.9 years and covers a full cycle: good years and bad ones, both on this person's record. That is long enough for the record to mean something. Time served isn't the same as doing the job well, though, so read this next to the return-on-capital line above, which covers the same years. filing ↗
• PASSProfit margin held up during the last sales slump: 88.8% vs 89.9% baseXBRL · The last time McDonald's's revenue fell, its profit margin per unit sold only slipped a little, from about 89.9% to 88.8%. It means McDonald's isn't being forced to cut prices to keep product moving, which is what a company with a weak competitive position has to do. This is the accounts talking, not the filing: I'm reading the 3 quarters from June 2020 to March 2021, measured against the year going into it, and a shift in what the company sold can imitate pricing power either way.
• PASSNormal profit margin across a full business cycle: FCF margin 32.6% vs 31.5% medianXBRL · McDonald's's current cash margin (32.6%) is a bit above its long-run average (31.5%). This is a mild warning rather than a problem: don't assume today's good margin lasts forever. My valuation grows the long-run average, not the temporarily high figure. Across the window the margin ran between 27.8% in December 2022 and 34.6% in December 2021.
• N/AHow much of the stock trades on an average day: $1,589MMARKET · McDonald's trades so much volume that this basically isn't a concern. There's no pass or fail here because the answer depends on how big a position I'd actually want to take.
• N/AShare of revenue from its single biggest customer: not establishedTEXT · I fetched and read McDonald's's February 24, 2026 10-K but found no sentence about customer concentration. That isn't the same as the filing saying there is none: it may simply be worded in a way my search doesn't catch. Read Item 1 and the concentration-of-risk note yourself before trusting this row. filing ↗
• PASSWhether the company switched auditors in the last 2 years: noneEDGAR · Companies sometimes switch accounting auditors right before something bad is uncovered which can be a warning sign. McDonald's hasn't changed auditors in the last 2 years, so there's no such red flag here.