In this article I will analyze McDonald’s stock, which is ticker(MCD), based in its earning per Share (EPS) and its Price/Earning (P/E) ratio as a beginning.
First, I need to see how was MCD’s EPS doing in the last six years. By browsing MCD’s (EPS) for the last years, I found that its EPS rise from 6.93$ in 2017 until it reached 7.94$ in 2022 with good increase in 2021 to 9.7$ in which as shown below:
The growth rate for MCD’s (EPS) is 2.76% which is really small figure because the company has big share in the market of fast food and already it control around 44% of this industry.
Now that we have the growth rate of the MCD’s EPS in the last five years, we are going to use this growth rate to estimated what will it be in 2027 ,which is five years from now by applying the following formula:
- PV = MCD EPS in year 2022 = 7.94 $
- i = growth rate of MCD EPS estimated above = 2.76%
- n = years of investment = 5 years in 2027
By substituting the numbers in the above formula, we end up with MCD’s EPS in year 2027 which is 9.1$.
Now we will go back to see the lowest (P/E) for MCD in same years period which 19.96 in year 2017.
Now that we have (P/E) ratio and the prospected EPS in 2027, all what we have to do is to multiply these two numbers and see what MACD’s stock price will be in year 2027, which is as following:
MACD’s Stock price in 2027 = (9.1)*(19.96)= 181.64$
Bottom line, MCD’s Stock is overvalued based in our calculation, so during the period from 2022 to 2027 I believe it will correct itself and dropped from from 267.57$ which is the price in the market as Dec 2022, to above price 181.64$ in year 2027. It will be good to buy the stock when its dropped below 181.64$ by 30-50% and then buy it which is technique done by Warren Buffet known as margin of safety.