McDonald's stock plunged by 22%: fast food giant at an unprecedented low
Fast food giant McDonald's made a dramatic change to its popular promotions and the results were devastating. With a sharp drop in stock and billions in debt, is the beloved chain on the way to a change of direction?
McDonald's has seen better days. The stock is already 22% off its peak, a highly unusual figure. The last time this happened was during the COVID crisis, when the stock fell by about 40%, but it should be noted that, unlike the current case, the entire market crashed due to the panic that existed at the time. Before that, the last time the stock plunged like this was during the global financial crisis in 2008, when it fell by about 25%, not very far from the current decline.
After understanding how unusual this case is, the obvious question arises: is there an opportunity in the fast food giant's stock? To examine this, one needs to understand why the stock corrected so sharply. McDonald's is considered a defensive stock, which usually rises and falls moderately, while historically the stock has mainly trended upward. Now, the situation is different, as in just the last half year the stock has fallen by 20%.
Several reasons led to this plunge. First and foremost, the main problems the company is facing these days are occurring in its operations in the United States. When measuring the growth of retail operations, it is customary to look at an index known as "same-store sales", which expresses the growth of the core business, excluding the opening of new branches. In the second quarter of 2026, whose results were published recently, the company reported growth in same-store sales in the United States of only 0.8%, a very weak figure.
That's not all; the company reported that during the month of July the figure was below zero. That is, not only are sales not growing, they are actually shrinking. Obviously, the most important territory for the company is the United States, and with such data, it is clear why the stock fell so hard, and why the president of operations in the United States was dismissed by the company's management.
What is the reason for such disappointing data? To understand this, one needs to dive into the strategy the company has taken in recent years. For many years, the company offered in its branches promotions such as "buy one get one for a dollar"; these were very popular promotions that attracted quite a few people to the branches and increased sales.
The management likely thought it was possible to get even more from customers with other promotions, so they removed this offer and instead introduced "discounted meals" featuring a considerable number of products for less than 3 dollars. This change, combined with the reduction of promotions for loyalty club members, led to a result opposite to what the company hoped for, and to weak sales data.
Another factor has been the rise in interest rates from zero to restrictive levels. This affected consumers, many of whom preferred to eat at home, but also impacted the company's financing costs. McDonald's is a company that operates with high leverage. The company's market value is 187 billion dollars, but it holds a net debt balance of 50 billion dollars, a significant amount relative to its market value, meaning high interest rates hurt its results.
Finally, it is worth noting the contraction of the P/E ratio. The profit in the last three years has not changed much (around 8.5 billion dollars in annual net profit), but the multiple that the market is willing to pay the company in light of the weak growth data is significantly lower.
The stock is currently trading at a multiple of 20, whereas we were used to seeing it at significantly higher multiples, even approaching 30. Therefore, the main decline in the stock stemmed from the contraction of the multiple and not from a contraction of profit. From here, an opportunity may arise if the company returns to growth and the market is again willing to grant it a higher multiple.
