Investors Choke on McDonald's

McDonald's (NYS: MCD) has been on a sizzling, burger-slinging tear for a long time now, but today some investors choked on its quarterly results. Sometimes good isn't quite good enough.

Mickey D's fourth-quarter net income rose 11% to $1.38 billion, or $1.33 per share. Operating income increased 14% to $2.12 billion. Total sales increased 10% to $6.82 billion.

The fast-food giant's torrid growth in same-store sales didn't stall out, either. Global comps increased by 7.5%. Broken out by geographic region, McDonald's boasted 7.1% comps growth in the U.S., 7.3% in Europe, and 6.9% in Asia/Pacific, Middle East, and Africa.

McDonald's isn't just excelling, it's expanding. It mentioned plans to allocate $2.9 billion in capital to open more than 1,300 new McDonald's locations, as well as give makeovers to 2,400 existing Golden Arches in 2012.

Given the stock's drop today, investors are giving a cool reception to the financial tidings. Possible reasons include a $0.03 earnings boost that wasn't generated from operations, as well as a 30-basis-point decline in margins linked to rising costs on food and other items.

Long-term McDonald's investors should take a deep breath and tune out the slight negativity right now. Beyond McDonald's impressive sales growth (including in beleaguered, uncertain Europe), the fact that it's dedicating financial resources to expand to meet demand is a pretty amazing turn of events in the current economic climate. Although overexpansion has been a concern for many retailers and restaurant chains, recent years' amazing performance suggests McDonald's management simply isn't prone to stupid mistakes.

Seriously, you've gotta ask the sellers what's to complain about. Mickey D's compares favorably to many restaurant stocks. Consider sad penny stock Cosi (NAS: COSI) ; rewind all the way back to the year ended January 2000, and it's never reported an annual profit in all that time. Ruby Tuesday (NYS: RT) may not be that bad off, but it recently warned that this year will be challenging, given expected weak comps and higher advertising costs.

Still, McDonald's stock has run up 34% in the last 12 months, and it's not lacking in formidable challengers. Wendy's (NAS: WEN) has been redoubling its competitive efforts after ditching the staggering Arby's chain, and having lost that albatross, it has a shot at being a stronger contender. Already, Wendy's has caught up with the No. 2 burger giant Burger King in U.S. sales, and it's been revamping its menu.

McDonald's is a solid hold for its shareholders, but even with today's weakness, it doesn't look like a great time for potential investors to buy. Put McDonald's on your watchlist, but wait for the shares to become more of a bargain before buying in.

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At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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