The late Yankees great Yogi Berra said, “A nickel isn’t worth a dime anymore,” referring to persistent inflation. Fast forward 50 years and the same could be said about fast food value menus.
mcdonalds The company announced this week that it would review its U.S. value strategy after posting the slowest sales growth in more than a year. Management is preparing a short-term “bridge plan” built around temporary menu items, national digital promotions and personalized offers for loyalty members. Given food and labor inflation, a true revival of the Dollar Menu is nearly impossible, but McDonald’s doesn’t necessarily need to recreate pricing from 20 years ago. In any case, it’s not the same consumer, so customers just need to regain the perception that they can get value for money
That perception has clearly worsened, with a recent UBS study reporting that the percentage of U.S. consumers who consider McDonald’s a good value has reportedly fallen from about 55% in 2020 to about 40% in 2024. There are many stories about ridiculously expensive “value meals.” One of the cases identified a McDonald’s on Interstate 95 in Connecticut, just north of New York City. This is where my brother lives as a symbol of fast food inflation. The company said sales rose just 0.8% in the second quarter, but spending among households with annual incomes of less than $40,000 fell 2.4%, according to trading firm Numerator.
McDonald’s may be having a hard time convincing customers that its menu still has value, but its stock is increasingly showing value. The stock price has remained virtually unchanged for five years. McDonald’s’ closing price was around $248.50, compared to about $242.50 five years ago. However, the performance of each stock is improving. Although the number of shares decreased by approximately 5.25%, expected sales in 2026 exceeded $28.2 billion, up from $23.2 billion in 2021. Estimated net income is expected to increase from $7.5 billion to about $9.15 billion, with free cash flow expected to be closer to $7.65 billion.
McDonald’s, 5 years
As a result, companies have higher sales, profits, and cash flow, and because they have fewer shares, each stock gets more equity. A Quarter Pounder may weigh the same, but each stock actually accounts for a slightly larger percentage of sales (or bites). In this case, shrinkflation works in favor of investors. McDonald’s has been trading at about 19.2 times expected earnings, compared to about 25 times five years ago. Forward multiples are the lowest they have been in a decade.
McDonald’s isn’t entirely dependent on the bottom of the so-called “K-shaped” economy. Higher-income consumers also eat there (President Trump reportedly likes it too). Consumers who aren’t visiting Mastro’s or Ruth’s Chris aren’t necessarily eating at home. Many people come down the restaurant ladder, where McDonald’s size, convenience and digital ecosystem offer advantages, but only if they think they’re getting a decent meal at a decent deal.
With three-month implied volatility of nearly 23.5%, it’s cheap compared to most stocks, but McDonald’s generally has low volatility. The 10-year average implied volatility is close to 19%. So while simply buying a call outright may not seem expensive at first glance, a spread probably makes more sense when you consider the stock’s historical movement.
With MCD near $248.50, consider selling a 3-month $230 or $235 put and using the proceeds to buy a $250-$275 call spread. Adjust the strike amount to establish a near “even” position (no net debits or credits). The deal accepts an obligation to buy the stock at an effective price well below today’s closing price, or below a five-year low, while expressing the view that the stock could recover toward $275 as its value initiative gains momentum.
The trade structure itself presents a bit of a value menu. If you simply bought a 250-strike call, you would pay $13.50. However, by selling both the 270-strike call and the 230-strike put, the premium expense is reduced to just $2.12. Of course, if you sell the put on the downside, your margin will be tied up.
Disclosure: Tidal owns/holds all securities mentioned in the article.
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