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Reverse DCF · MCD

What MCD's Stock Price Is Really Betting On

The short answer

At today's price, McDonald's stock is pricing in about 10.8% annual free-cash-flow growth for the next ten years. Over the past three years (once a 2022 one-time distortion clears), actual FCF growth averaged 9.4% a year — a modest, not extreme, gap.

The conclusion

At its current price, MCD implies ~10.8% annual FCF growth for the next 10 years, discounted at 9% (using trailing-twelve-month FCF).

McDonald's actual 3-year FCF growth (FY2022→FY2025, after a 2022 distortion clears) has averaged 9.4% a year.

Verdict: close to, but modestly above, the recent pace A required growth rate of 10.8% sits within about 15% of the recent three-year actual pace (9.4%) — not an extreme stretch. The real question isn't whether this price is obviously cheap or expensive; it's whether this pace can be sustained for a full decade, especially given management's two recent admissions of execution shortfalls.

Required growth vs. historical growth

Market's ask (TTM FCF base, WACC 9%)
10.8%
3-yr actual FCF growth (FY22→25)
9.4%
5-yr actual FCF growth (FY21→25, distorted)
0.3%
5-yr actual revenue growth (reference)
3.7%

Required growth from the reverse DCF below. The 5-year FCF figure is distorted by a high FY2021 base (post-pandemic recovery peak) followed by one-time Russia-exit costs (~$1.2-1.4B pretax) in FY2022 — the 3-year window (FY2022-2025) more accurately reflects the recent trend. Source: 10-K FY2021-FY2025 cash flow and income statements.

Sensitivity: what if the discount rate moves?

Required 10-year FCF growth by discount rate (WACC)
WACCRequired growth (TTM FCF)
8%8.4%
9% (base case, large stable company)10.8%
10%13.0%
12%17.0%

At a 12% discount rate, the required growth rate jumps to 17.0% — which would flip the read from "close to history" to "the market wants meaningfully more."

What would move this number

  • Switching from trailing-twelve-month FCF ($7,761M) to a three-year average ($7,038M) raises the required growth rate from 10.8% to 12.1%.
  • A more conservative 12% discount rate pushes the required growth rate to 17.0%.
  • Changing the terminal growth rate or the length of the high-growth window (10 years vs. 5) would also shift the answer — see the calculation details below.

Show your work

Inputs, sources, model assumptions, and the calculation
  • Share price$266.99 — stockanalysis.com, Aug 18, 2026 close
  • Diluted weighted-average shares711.1M — 10-Q Q2 FY2026
  • Trailing-twelve-month FCF$7,761M — calculated: FY2025 annual operating cash flow ($10,551M) minus H1 FY2025 ($4,426M) plus H1 FY2026 ($5,222M) = $11,347M; capex similarly = $3,586M; FCF = $11,347M − $3,586M
  • Net debt$39,041M — 10-Q Q2 FY2026 balance sheet (Jun 30, 2026): long-term debt $39,863M minus cash $822M
  • Discount rate (WACC)9% base case (8%/10%/12% tested) — large stable-company default
  • Terminal growth rate2.5% — long-run GDP-level assumption

Normalization check: trailing-twelve-month FCF ($7,761M) is +10.3% above the three-year (FY2023-2025) average ($7,038M) — well within the ±40% threshold, so used as-is without adjustment.

Model: free cash flow is assumed to grow at a constant annual rate g for 10 years, then at a 2.5% terminal rate thereafter, solved by bisection for the value of g that equates present value to today's enterprise value (market cap + net debt).

The fine print

This number is a starting point, not an answer
  • Change the discount rate, the FCF base, the projection window, or the terminal growth rate, and the answer moves — see the sensitivity table above.
  • A reverse DCF shows what the market currently expects — it does not say what the stock is "worth."
  • McDonald's has twice admitted "it wasn't strategy, it was execution" in the last two years (2024, 2026) — whether that pattern recurs is directly relevant to whether 10.8% growth is achievable, not something this math alone can answer.
  • Any investment decision, and its outcome, is your own responsibility.
Built from McDonald's 10-K filings (FY2021-FY2025) and 10-Q (Q2 FY2025, Q2 FY2026), plus a web search for the current share price (stockanalysis.com, Aug 18, 2026). This tells you where to dig deeper — it is not a buy or sell signal.

Frequently asked questions

What growth rate does MCD's stock price assume?

At today's price, McDonald's stock is pricing in about 10.8% annual free-cash-flow growth for the next ten years.

How does that compare to McDonald's actual growth?

Over the past three years (once a 2022 one-time distortion clears), McDonald's actual free-cash-flow growth averaged 9.4% a year — close to the ~10.8% required, a modest rather than extreme gap.

What share price was used for this analysis?

This analysis used $266.99, McDonald's closing price, as of Aug 18, 2026.