McDonald's Q3 Shows Some Concerning Trends

According to Gadfly's Shelly Banjo, investors are treating McDonald's stock like filet mignon as opposed to what it really is — a Filet-O-Fish.

Even though McDonald's has now delivered five consecutive quarters of positive comparable-store sales, growth in the United States is slowing. Specifically, comparable-store sales grew 5.7 percent in the fourth quarter of 2015, 5.4 percent in the first quarter of this year, 1.8 percent in the second quarter and most recently 1.3 percent in the third quarter.

Granted, McDonald's is outperforming the broader Bloomberg Intelligence restaurant index, but the fast food chain will also face the same challenges the rest of the industry sector is suffering from — consumers swapping fast food takeout for grocery store items.

Related Link: Investors Cheer McDonald's Q3 Results

Banjo noted that McDonald's real test will play out in the fourth quarter when sales will lap the roll-out of McDonald's All Day Breakfast offering. If comparable sales turn negative in the coming quarter, then it will be a sign that McDonald's is low on options to spur growth.

McDonald's management team isn't hiding the fact that the company's outlook isn't that exciting. Management already acknowledged that they aren't expecting much sales growth in the near-term and investors are baking this in to the stock, which is trading at 18 times forward earnings, a discount to its two-year average of around 20.

Yet if McDonald's under-promises and over-performs at a time when its restaurant peers are struggling, then that could prove to be enough to keep investors happy.

At last check, McDonald's was up 3.14 percent on the day at $114.01.

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