Critical Comparison: McDonald’s (NYSE:MCD) vs. Shake Shack (NYSE:SHAK)

McDonald’s (NYSE:MCD) and Shake Shack (NYSE:SHAK) are both retail/wholesale companies, but which is the superior stock? We will compare the two companies based on the strength of their valuation, earnings, risk, dividends, institutional ownership, analyst recommendations and profitability.

Profitability

This table compares McDonald’s and Shake Shack’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
McDonald’s	31.62%	-442.10%	14.75%
Shake Shack	2.76%	9.62%	2.81%

Insider & Institutional Ownership

70.3% of McDonald’s shares are owned by institutional investors. Comparatively, 86.1% of Shake Shack shares are owned by institutional investors. 0.3% of McDonald’s shares are owned by insiders. Comparatively, 8.3% of Shake Shack shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for McDonald’s and Shake Shack, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
McDonald’s	1	14	17	0	2.50
Shake Shack	1	12	14	1	2.54

McDonald’s presently has a consensus target price of $334.45, indicating a potential upside of 20.99%. Shake Shack has a consensus target price of $107.08, indicating a potential upside of 77.22%. Given Shake Shack’s stronger consensus rating and higher probable upside, analysts clearly believe Shake Shack is more favorable than McDonald’s.

Valuation & Earnings

This table compares McDonald’s and Shake Shack”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
McDonald’s	$26.89 billion	7.31	$8.56 billion	$12.13	22.79
Shake Shack	$1.45 billion	1.79	$45.72 million	$0.98	61.66

McDonald’s has higher revenue and earnings than Shake Shack. McDonald’s is trading at a lower price-to-earnings ratio than Shake Shack, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

McDonald’s has a beta of 0.43, suggesting that its share price is 57% less volatile than the S&P 500. Comparatively, Shake Shack has a beta of 1.78, suggesting that its share price is 78% more volatile than the S&P 500.

Summary

Shake Shack beats McDonald’s on 8 of the 15 factors compared between the two stocks.

About McDonald’s

McDonald’s Corp. engages in the operation and franchising of restaurants. It operates through the following segments: U.S., International Operated Markets, and International Developmental Licensed Markets and Corporate. The U.S. segment focuses its operations on the United States. The International Operated Markets segment consists of operations and the franchising of restaurants in Australia, Canada, France, Germany, Italy, the Netherlands, Spain, and the U.K. The International Developmental Licensed Markets and Corporate segment consists of developmental licensee and affiliate markets in the McDonald’s system. The firm’s products include Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, wraps, McDonald’s Fries, salads, oatmeal, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafe beverages, and other beverages. The company was founded by Raymond Albert Kroc on April 15, 1955, and is headquartered in Oak Brook, IL.

About Shake Shack

Shake Shack Inc. owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally. Its Shacks offers hamburgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. The company was founded in 2001 and is headquartered in New York, New York.