McDonald’s Corp (NYSE: MCD) shares have fallen to four-year lows, prompting a former hedge fund manager to analyze the current valuation of the stock. Whitney Tilson, in a recent newsletter, compared the current market conditions to his assessment from June, noting that the stock has dropped an additional 14% since then.
Tilson highlighted several strengths of the company, including boosted margins through franchising, free cash flow that has doubled since 2018, and robust shareholder returns via share buybacks and a dividend yield exceeding 3%. He noted that while revenues have remained relatively flat over the past two decades due to franchising, the business model has reduced capital intensity and boosted profits.
The former manager pointed to recent comparable sales figures, which were up 5.7% in the fourth quarter of 2025, 3.8% in the first quarter of 2026, and 1.3% in the second quarter of 2026. Despite this, Tilson described McDonald’s as a "slow-growing cash cow" with high margins and robust free cash flow.
Regarding the impact of weight-loss drugs on the restaurant sector, Tilson acknowledged the challenge but argued that the stock's valuation makes it too cheap to ignore. He noted that McDonald’s trades at 17.6 times consensus analysts’ estimates for next year, which is slightly below its historical average price-to-earnings multiple of 19.7 times over the past quarter century.
In June, Tilson had previously called the stock fairly valued. He has since reached a different conclusion, stating, "Today, I think it’s moderately undervalued." Tilson also shared his personal investment history with the company, recalling that he bought shares in late 2002 and added to his position in early 2003 when they were under $13. He noted that the stock eventually doubled within two years and reached the mid-$60s, though he later sold during the 2008 bear market, a move he later regretted.
