Wednesday, July 22, 2009

McDonald's Valuation

I decided to do a valuation of MCD because if I were to buy and hold anything it would be stocks like this with a strong brand, good managment, and low debt. Unfortunately, it is way over valued based on any semblance of reality in future growth. Based on my calculations for earnings growth at 17% and a required rate of return of 10% MCD should be valued closer to $20 rather than the $60 it is trading at today. Current investors are pricing in something like a 60% annualized growth rate. It seems crazy to me, but what do I know. I hope this is not reflective of other stocks because if so we are in for a crazy ride (down). Even with prices 30-60% off of their all time highs with some stocks, it does not appear that there is much value out there. We could see another 50% haircut before things start to look sane.

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