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TheStreet Open House

McDonald's Thrives as Consumers Get Cheap

Stocks in this article: YUM BKC

Burger King is about a third of the size of McDonald's based on total restaurants, and it trails in the number of international outlets. BKC's stock is down about 30% this year. Yum! Brands (YUM), owner of KFC and Taco Bell, has seen its shares plunge 32%. MCD has fallen just 4%.

However, numerous risks face the company.

Since McDonald's does a significant amount of international business, it faces foreign-exchange risks and may be hurt if the dollar continues to appreciate. A quick ratio of 0.82 and current ratio of 0.98 indicate a weak liquidity position. The company has a reasonable amount of debt as reflected by a debt to capital ratio of 0.43.

McDonald's business may continue to thrive if the economy shrinks further, but will that translate to stock price appreciation? Not necessarily. Even sound companies are being battered in the stock-market selloff. McDonald's has outperformed competitors and improved profitability, but the shares remain depressed. Market pessimism, not company performance, is preventing investors from reaping the rewards of McDonald's success.

Employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published. While employees cannot provide investment advice or recommendations, the writer appreciates your feedback and can be reached at jake.lynch@thestreet.com.
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