McDonald's Is Between a Rock and a Hard Place. Here's Why the Sinking Fast Food Stock Could Still Go Lower

McDonald's (NYSE:MCD) stock is down big this year. It has fallen more than 23% even as the S&P 500 has risen by 14% and hit new record highs. It's been a disastrous year, and there are no guarantees that things will get better anytime soon. The company has been offering more value options, but it hasn't been fixing its growth problems. Meanwhile, inflation remains elevated.

For prospective McDonald's investors, this all paints a concerning picture. While it still has an iconic brand, there's definitely more risk surrounding the fast food stock than normal, and its shares could still go lower.

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Why McDonald's could have little choice but to raise prices

McDonald's has a problem. Costs are rising, and its same-store growth rate in the U.S. market was a paltry 0.8% in its most recent quarter. That's not going to win over investors, much less convince them that the business is bringing in more customers with greater discounts and value options.

Meanwhile, beef prices have been rising considerably. CEO Chris Kempczinski says that in its key markets, beef costs have roughly doubled in a span of five years. A solution to combat that is, of course, to raise prices. It's a tough situation to be in because on the one hand, the company wants to protect margins, but higher prices may result in even lower growth numbers, which may contribute to lower earnings anyway, even if the margins are a bit stronger.

McDonald's is already struggling to prove to consumers that it provides good value. Raising prices again may only exacerbate those issues.

Should investors buy the stock on weakness?

McDonald's has declined significantly in value this year, and its forward price-to-earnings multiple is modest at 17 (based on analyst expectations). By comparison, the average stock in the S&P 500 is trading at close to 20 times its estimated earnings. It's a relatively cheap buy, and it is trading around its five-year low.

There's some decent value here for investors, if for no other reason than to secure a solid, growing dividend. At 3.3%, McDonald's does offer a relatively high yield, and it raised its dividend for a 50th consecutive year earlier this year, becoming a Dividend King in the process.

Although McDonald's is facing some challenges, so too are many other fast food and restaurant chains. It has, however, shown over not only years but decades, its ability to adapt and evolve to customer needs. That's why, as a long-term investment, it can still be a good buy right now, even if, in the short term, it may be a bit of a bumpy ride for investors.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends the following options: long January 2028 $320 calls on McDonald's and short January 2028 $340 calls on McDonald's. The Motley Fool has a disclosure policy.