eyeQ: what’s cooking at McDonald’s?
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to generate actionable trading signals. Here’s what it says about the global fast-food chain.
21st March 2024 10:02
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
McDonald’s
Trading signal: strategic long-term model
Model Value: $299.86
Fair Value Gap: -5.42% discount to model value
Macro Relevance: 84%
Data correct as at 21 March 2024. Please click glossary for explanation of terms.
The OG of fast foods is cheap on eyeQ. On current patterns, McDonald's Corp (NYSE:MCD) should trade around $300. That’s where macro conditions say it should be given the stock’s relationship with economic growth, commodity prices, the dollar and more.
Instead McDonald’s sits 5.42% below that. March has been brutal for the stock. Driven by a mix of downgrades for Q1 sales, especially international; but also by a global technology outage that left customers unable to order, and even closed some stores.
Such stories clearly hurt but it is important to note that macro matters too. For most of 2023, eyeQ’s macro relevance score was low, which meant those company news stories were dominant. But, since October, macro relevance has risen above our 65% threshold for a macro regime. Macro can currently explain 84% of price action, which adds to our conviction on this signal.
The bottom line is that we have a nice entry level to McDonald’s, giving investors the opportunity to add a blue-chip US brand to their portfolio.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
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