McDonald's Corporation (MCD) Showing Signs Of Being A Roof Leaker

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified McDonald's Corporation ( MCD) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified McDonald's Corporation as such a stock due to the following factors:

  • MCD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $427.4 million.
  • MCD has traded 4.1 million shares today.
  • MCD is trading at 1.50 times the normal volume for the stock at this time of day.
  • MCD crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on MCD:

McDonald's Corporation franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. Its restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. The stock currently has a dividend yield of 3.3%. MCD has a PE ratio of 17.5. Currently there are 11 analysts that rate McDonald's Corporation a buy, no analysts rate it a sell, and 13 rate it a hold.

The average volume for McDonald's Corporation has been 4.7 million shares per day over the past 30 days. McDonald's has a market cap of $96.6 billion and is part of the services sector and leisure industry. The stock has a beta of 0.25 and a short float of 1.1% with 2.92 days to cover. Shares are up 10.1% year to date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates McDonald's Corporation as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, expanding profit margins, good cash flow from operations and increase in stock price during the past year. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the ratings report include:
  • MCD's revenue growth has slightly outpaced the industry average of 0.8%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • MCDONALD'S CORP has improved earnings per share by 6.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MCDONALD'S CORP increased its bottom line by earning $5.36 versus $5.28 in the prior year. This year, the market expects an improvement in earnings ($5.56 versus $5.36).
  • 45.13% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.78% is above that of the industry average.
  • Net operating cash flow has slightly increased to $2,050.50 million or 2.55% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -17.35%.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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