McDonald’s Vs Chipotle Stock

McDonalds vs Chipotle Stock: The stocks of fast food restaurants have been on the rise lately, with many companies exceeding the already-healthy gains of the S&P 500 this year. Investors who are looking to purchase shares of fast food restaurant chains would do well to be interested in two companies in particular: McDonald’s [NYSE: MCD] and Chipotle [NYSE: CMG].

Beyond the fact that both are fast food corporations, McDonald’s was actually an early investor in Chipotle and grew to become the company’s largest shareholder until fully divesting itself in 2006. Now the question is: which stock is a better choice for investors in 2019, McDonald’s or Chipotle?

The Pros and Cons of Investing in Fast Food Stocks

Fast food companies such as McDonald’s [NYSE: MCD] and Yum! Brands [NYSE: YUM] (which operates restaurant chains such as Taco Bell, KFC, and Pizza Hut) are some of the largest in the world and bring in some of the highest revenues.

While the biggest fast food titans have already spread themselves across the globe, other restaurant chains still have room for international growth and expansion. Chipotle [NYSE: CMG], for example, only operates 29 restaurants outside the U.S. in four countries: Canada, the United Kingdom, France, and Germany.

Still, there’s a concern that standard fast food fare like burgers and fries doesn’t appeal to younger and health-conscious customers. According to a survey by Deloitte, 83 percent of people believe that typical fast food menus don’t have enough healthy choices.

Traditional fast food giants like McDonald’s [NYSE: MCD] and Taco Bell have had to adjust their offerings in response to healthier alternatives like Sweetgreen and Salad and Go. As a result, the already crowded fast food industry is changing in response to shifts in consumer demand, making its future more uncertain.

One final issue to note is that the profitability of fast food restaurants is heavily affected by the prices of commodities such as grains, beef, and chicken. Unexpected weather patterns and shortages can affect these commodities’ price tag, which in turn impacts the profit margins of companies like McDonald’s and Chipotle.

Is McDonald’s Stock a Buy?

McDonald’s [NYSE: MCD] is the most iconic fast food chain in the world, with 36,000 locations in more than 100 countries. The company has 10 percent of global fast food market share and 43 percent of the U.S. market. Steve Easterbrook has served as the company’s CEO since 2015.

The McDonald’s brand is synonymous with quick, convenient, and easy meals served at low prices. With such a massive global footprint, McDonald’s [NYSE: MCD] has switched focus from expanding to upgrading its restaurant locations, including features such as touchscreens and modern decor.

McDonald’s runs a very debt-heavy business, with $44.5 billion in debt compared with only $2.3 billion cash on hand. Fortunately for investors, the company is also capable of pulling in massive numbers when it comes to operating profit and cash flow, which helps to mitigate the concerns about debt.

Other key metrics also point to good news for McDonald’s [NYSE: MCD], especially head-to-head with Chipotle [NYSE: CMG]. For example, the current McDonald’s price to earnings ratio (P/E) is 27.35 compared with Chipotle’s 69.03, which means that McDonald’s stock appears like the better deal.

Should You Invest in Chipotle Stock?

Chipotle [NYSE: CMG] is itself a force to be reckoned with in the competitive fast food industry, although its numbers may seem downright tiny when compared with McDonald’s [NYSE: MCD].

The first Chipotle’s restaurant was opened in Denver in 1993, and the company now operates 2,500 locations in the U.S. and internationally.

In contrast with McDonald’s, Chipotle’s differentiates itself by focusing on providing meals that are higher-quality and healthier than typical fast food.

Since the beginning of 2019, Chipotle stock prices finally seem to be recovering from the food poisoning scare of several years ago, in which dozens of customers were infected with E. coli.

Also unlike McDonald’s, Chipotle’s short-term strategy is focused on growth rather than modernization.

Chipotle’s chief development officer Tabassum Zalotrawala says that the company “hasn’t even scratched the surface” when it comes to its footprint in the U.S. New innovations like “digital drive-throughs” for mobile carry-out orders are also expected to help Chipotle [NYSE: CMG] reach its full potential.

McDonalds Vs Chipotle Stock: The Bottom Line

Positive recent U.S. economic trends such as high consumer confidence and low unemployment have brought new life into fast food stocks, as well as the rise of delivery services like GrubHub and Uber Eats.

If you’re looking to invest in shares of fast food companies, both McDonald’s [NYSE: MCD] and Chipotle [NYSE: CMG] seem like intriguing options with lots of potential for future growth. Both stocks are currently trading around their all-time highs, and there’s little reason to expect that they won’t climb even higher.

News of Chipotle’s “comeback” after the stock cratered in 2015 should be very welcome for investors interested in the fast food industry, and both companies seem like good options here. However, in the head-to-head comparison, McDonald’s stock comes out slightly on top, thanks to the company’s continued strong profitability and attractively priced shares.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.