Watch Out: Barbarians At The Gate For McDonald's (MCD)

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 ( MCD) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified McDonald's 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 $560.1 million.
  • MCD has traded 8.0 million shares today.
  • MCD traded in a range 259.4% of the normal price range with a price range of $2.91.
  • MCD traded above its daily resistance level (quality: 69 days, meaning that the stock is crossing a resistance level set by the last 69 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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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. The company's restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. The stock currently has a dividend yield of 3.6%. MCD has a PE ratio of 17.1. Currently there are 7 analysts that rate McDonald's a buy, 1 analyst rates it a sell, and 12 rate it a hold.

The average volume for McDonald's has been 5.5 million shares per day over the past 30 days. McDonald's has a market cap of $92.5 billion and is part of the services sector and leisure industry. The stock has a beta of 0.56 and a short float of 1.2% with 1.89 days to cover. Shares are down 2.4% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates McDonald's as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • MCD's revenue growth has slightly outpaced the industry average of 5.8%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.96, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.46, which illustrates the ability to avoid short-term cash problems.
  • 44.52% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 19.31% compares favorably to the industry average.
  • MCDONALD'S CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MCDONALD'S CORP increased its bottom line by earning $5.56 versus $5.36 in the prior year. For the next year, the market is expecting a contraction of 3.9% in earnings ($5.35 versus $5.56).
  • The change in net income from the same quarter one year ago has exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income has decreased by 0.7% when compared to the same quarter one year ago, dropping from $1,396.50 million to $1,387.10 million.

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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