Investing: “It’s not supposed to be easy. Anyone who finds it easy is stupid.” – Charlie Munger
Over the past 2 years, McDonald’s stock is up over 70% while Chipotle’s is down 38%.
Was this expected to happen? Not exactly.
In July 2015, Chipotle’s stock had advanced 70% over the prior 2 years while McDonald’s gained only 4%.
At the time (2 years ago), most everyone was bullish on Chipotle and bearish on McDonald’s. A few reasons why, beyond the wide differential in recent stock market performance:
A customer satisfaction survey of fast food chains ranked Chipotle #2, trailing only Chick-fil-A. In the same survey, McDonald’s was ranked #17, dead last.
Another prominent survey at the time reported that “Americans trust Chipotle, but not McDonald’s.” Only 30% of respondents said they would invest in McDonald’s, down almost 10% from the year prior.
A headline from business insider read as follows: “McDonald’s CEO has a misguided obsession with Chipotle that could drive business into the ground.” The article noted that same-store sales at McDonald’s had fallen for six straight quarters while Chipotle’s business was “booming” with same-store-sales growth of 17%.
Another publication asked: “Does McDonald’s have a Plan for Growth?” The article called the new McDonald’s CEO’s plan for a turnaround a “fiasco” which “doesn’t change the long-term issues the company faces: perceived low-quality food that consumers are increasingly rejecting, and bloated menus that slow food delivery and escalate tensions with franchisees.”
Moody’s downgraded McDonald’s debt, following similar moves from S&P and Fitch.
First-level thinking in July 2015 would have consisted of the following:
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