Beyond all of the Big Macs and french fries, McDonald’s is one of the largest corporations in the entire world.
As stated plainly by the company’s late former CFO Harry J. Sonneborn, “We are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”
This concept was the mantra of McDonald’s executives ever since it was taken over by Ray Croc from the McDonald brothers in the 1960s. He and partner Sonneborn ran the company so successfully that it changed the landscape of the food industry, essentially inventing fast food as we know it today.
Even today, McDonald’s profits are impressive and continue to rise. The first quarter of 2022 showed a gross profit of just over $3 billion, which was also a 14.31% increase from the previous year.
Some investors have hesitated from putting their money in the corporation due to a valuation that they worry is too high. However, considering the company has a price-to-free-cash-flow ratio of about 27, as well as a price-to-earnings ratio of 25—not to mention the fact that their revenue is still growing—we think it remains to be a great bet.