McDonald's Stock Price Forecast: MCD Tumbles to 2022 Low, Will It Fall Further or Rebound?

TradingKey - McDonald's stock plunges 5%, further extending this year's losses. Will it continue to fall?

On August 23 Eastern Time, McDonald's (MCD) faced a new round of significant selling pressure, with its stock price plunging nearly 5% intraday to a low of $234, setting a new low since October 2022. In March this year, McDonald's stock price rose to an all-time high of $341.75 and subsequently trended downward, accumulating a 30% drop to date. So, has McDonald's stock price bottomed out, or will it continue to fall?

Yesterday, McDonald's hosted its Investor Day, where management presented long-term operational targets and revenue expansion expectations that were conservative relative to the market's exceptionally high standards. This triggered short-term profit-taking and risk-averse selling pressure, broadening the stock's losses. Over the past two years, McDonald's passed on labor and ingredient costs through price hikes, but consumer resistance to fast-food price increases has surged recently. Forcing price hikes risks losing market share, while promotional price cuts directly squeeze operating margins for both franchisees and headquarters.

The underlying reason for the decline in McDonald's stock price is cooling purchasing power among low- and middle-income consumers, rooted in the lagged effects of high inflation coupled with high interest rates. This has led McDonald's core consumer demographic (low- and middle-income households) to reduce the frequency of dining out and ordering takeout. Even after launching value meals, the company still faces the dual challenges of declining average ticket size and slowing customer traffic growth.

In addition to negative customer traffic growth in its domestic US market, slowing growth in overseas markets has also posed significant pressure on McDonald's stock price. Specifically, boycotts in the Middle East and weak purchasing power in parts of Europe continue to drag down same-store sales growth in the International Developmental Licensed (IDL) markets.

As McDonald's stock price corrected to around $238, its price-to-earnings (P/E) ratio dropped back to 19.3x, well below its historical highs (25x–28x). Moreover, its dividend yield has recovered to around 3.2%–3.3%, offering strong downside protection and attraction for long-term value capital and income funds. Simply put, as a defensive leader with a high economic moat and stable free cash flow, its current valuation has become quite attractive.

From a technical analysis perspective, both the RSI and MACD indicators have entered severely oversold territory, indicating a demand for a technical rebound. In the short term, McDonald's is very likely to form a defensive bottom in the $230–$240 range and stage a technical rally. However, to resume a volatile upward trend, McDonald's needs to prove that its value meal strategy launched in the US can effectively bring back low- and middle-income consumers and boost foot traffic.

McDonald's stock price chart, Source: TradingView