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Tech stocks drove the S&P 500’s nice bounceback yesterday, bringing the index’s three-day losing streak to an end. The 0.89% gain, however, wasn’t enough to produce a positive result over the past five trading days, down 0.44%.
As a result of the downward trend over the past five days, the new 52-week lows on the NYSE and the Nasdaq yesterday outnumbered the new 52-week highs, 191 to 134, a telltale sign that investors are worried about an escalation in the Middle East.
I’m neither a geopolitical wonk nor a technical analyst. What I do know is that for most of the past three months—a period when the index gained over 6%—the new 52-week highs consistently outnumbered the new 52-week lows, often by a wide margin.
I’m not a momentum investor, so on Wednesdays, when I write about stocks hitting new 52-week highs and lows, if the lows led the way the previous day, I’m almost always going to select a name or two from the new 52-week lows.
In yesterday’s action, McDonald’s (MCD) hit a new 52-week low of $263.65, its 19th of the past 12 months, and down 23% from its March 2 all-time high of $341.75.
Is MCD a buy-on-the-dip candidate? Maybe. Here’s why.
How Low Can MCD Go?
Yesterday was the stock’s lowest point since July 2024. Before that, it was October 2023, and October 2022 before that.
While I’m not a technical analyst, I do like to look at charts to get an idea of the probability that the stock could trade lower in the future. As you can see from the chart below, the closest the 30-day MA (moving average) has come to heading below the 200-day MA was in June 2004, when the spread was $3.44; today, it is $119.72. The gap has never been higher.
Further, in these 22 years, the shares have dipped below the 30-day on just three occasions: March to June 2020, April to August 2024, and April to July 2026.
We are in the middle of the latest instance. The previous two lasted an average of 4.5 months. We are getting close to the 4.5-month average. If the 30-day MA is going to rebound and move higher, it likely should happen by the end of the summer.
Where that is, I couldn’t say. However, McDonald’s reports its Q2 2026 results on Aug. 4. A good report would certainly help.
Will the Golden Arches Surprise on the Upside?
McDonald’s global same-store sales grew 3.8% in Q1 2026, with all three of its markets up more than 3%. The company has said it expects its Q2 2026 global same-store sales growth to be lower than the 3.8% gain in Q2 2025.
Analysts agree.
“‘Data suggest McDonald's was unable to power through industry challenges in 2Q, and we are modeling US same-store sales down 2%/reaching a multi-year low in relative performance vs the fast food benchmark,’ Citi analyst Jon Tower said in a new note,” Yahoo Finance Executive Editor Brian Sozzi wrote on July 16.
However, the Citi analyst sees some light at the end of the tunnel.
“‘With beverages on the horizon, we think this can be the low-water mark for both same-store sales and the multiple before a September investor event gives McDonald's the opportunity to make the case for asset investments/a faster pace of menu innovation/beverages as multi-year sales drivers,’ he added,” Sozzi wrote.
McDonald’s U.S. foot traffic in Q2 fell by 4.6%, according to the Citi analyst, with May the worst of the three months.
It’s going to be hard for the Golden Arches to deliver a big surprise on Aug. 4.
The Valuation is More Reasonable
According to S&P Global Market Intelligence, McDonald’s’ forward P/E multiple is 20.44, its lowest level since March 2018. The highest multiple since March 2018 was 30.79x in June 2020.
At the end of June, Barchart contributor Mark Hake discussed the reasons MCD stock might have hit bottom. In hindsight, we know that Hake might not be too far off. The reckoning comes in two weeks.
Anyway, Hake loves free cash flow (FCF), as do I.
In his June 29 commentary, he remphasized his $299.16 value for MCD stock, based on $7.63 billion in FCF in the latest 12 months, a 3.6% FCF yield, and a $212.5 billion fair market value.
How does Hake’s share price compare with analyst targets? The mean 12-month target is $329.30, with the lowest target price of $286, above where it currently trades.
When it comes to FCF and FCF yield, I prefer to use EV (enterprise value) because it reflects a company’s entire capital structure, but there’s no problem using market cap.
Based on Hake’s $7.63 billion estimate for McDonald’s FCF over the next 12 months and a $241.23 billion EV, its FCF yield, including debt less cash, is 3.2%.
Using the same $7.63 billion FCF but with an EV of $274.84 billion at the end of March, which is closer to its March 2 all-time high, the FCF yield was 2.8%, 40 basis points lower.
So, valuation-wise, the 23% drop since March 2 has made MCD shares more reasonably priced for sure, but do they qualify as GARP (growth at a reasonable price)?
I’m not convinced.
Should You Buy on the Dip?
As of July 21, McDonald’s annualized five-year return is 4.65%, while its 10-year annualized return is 9.61%, double the five-year return.
That tells me that long-time McDonald’s shareholders haven’t had a whole lot to brag about in the past five years. Perhaps reversion to the mean will kick in, leading to above-average performance in the next five years. Anything’s possible, I suppose.
The problem with free cash flow: While it’s great to have, if allocated poorly, it’s meaningless to a company’s share price.
Is McDonald’s free cash flow poorly allocated?
McDonald’s 2025 10-K states its three pillars of capital allocation:
1) Invest in opportunities to grow the business and drive strong returns, including both capital expenditures as well as investments in technology, digital, and our GBS organization;
2) Prioritize our dividend and
3) Repurchase shares with remaining free cash flow over time.
That’s very straightforward. It doesn’t emphasize debt repayment or acquisitions.
In 2025, McDonald’s capital expenditures were $3.37 billion. That was split between new restaurants (67%), existing restaurants (30%), and Other (3%), which includes corporate equipment and technology. In addition, it paid out $5.12 billion in dividends and $2.02 billion for share repurchases.
It allocated $10.5 billion to its three capital allocation levers. Its operating cash flow was $10.6 billion, so it required no infusions of cash to implement its strategy. That’s the good news.
The bad news is that it continues to invest heavily in its restaurant business without suitable long-term returns for shareholders.
Given my GARP bent, I wouldn’t consider MCD stock until the FCF yield was at least 4%. Based on a 2026 FCF estimate of $7.55 billion, 5% higher than in 2025, the EV should be $188.75 billion before I’d consider investing. That translates to a market cap of $135.02 billion, or $190 a share. The last time MCD traded around $190 was March 2019.
Does that mean you shouldn’t buy MCD stock at $264? Nope. Historically, McDonald’s FCF yield has been lower than many of its peers. It shouldn’t be a dealbreaker. However, I would definitely wait until after it reports earnings on Aug. 4.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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