McDonald’s (MCD -0.85%) is one of history’s most successful restaurant chains. What started as a hamburger restaurant in Southern California has grown into a global chain with over 44,000 locations in more than 100 countries.
While such growth bodes well for long-term investors, it could bring uncertainty to future growth plans. That complicates the prospects for turning $10,000 in McDonald’s stock into $50,000 over the next five years. Here’s why.
Image source: Getty Images.
Achieving fivefold growth
Unfortunately for McDonald’s stock bulls, its recent history does not point to fivefold gains over five years. If one had invested $10,000 five years ago, that position would be worth less than $14,600 today. If including dividend income, which has risen every year since 1976, that grows to less than $16,400.
This is not to say McDonald’s is a poor choice. Its business model revolves around 95% of its locations operating as franchises. After paying a franchising fee, franchisees must rent the properties from McDonald’s and pay a royalty fee amounting to 4% or 5% of sales. Since the fixed expenses define most of this arrangement, it makes the company’s business model highly recession resistant.
Nonetheless, its financial growth may not inspire fivefold gains over the next five-year period. In the first six months of 2025, revenue of $12.8 billion grew by only 1% yearly. While it kept cost and expense increases in check, the $4.1 billion in net income in the first half of the year was only a 4% yearly gain.
Moreover, its 27 P/E ratio is slightly under the S&P 500 (^GSPC -0.32%) average of 30. That gives its stock an average valuation, decreasing the likelihood that an expanding earnings multiple would drive it dramatically higher.
As a company, McDonald’s should continue to benefit from revenue from its franchisees and rising dividends. Although that should bring positive returns to the company, its financial growth will likely not turn a $10,000 investment into $50,000 over the next five years.
Will Healy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.