Over time, a company’s earnings are the key driver of its returns. However, many industries look at other metrics to determine the quality of earnings. Understanding these key metrics can give investors a sign as to a company’s long-term health beyond earnings.
For instance, the restaurant industry may look at the turnover, or the number of times that customers sit down at tables during the course of a day. Many retailers use similar metrics.
The simplest metric for retailers and fast food restaurants is same-store sales. That gives a sign as to whether a company is performing well, or if the business is holding flat or even in decline as more stores open.
That’s why shares of McDonald’s (MCD) rallied following its latest earnings report. While overall earnings were a miss, same-store sales held strong. That indicates that consumers are continuing to enjoy McDonald’s offerings, even amid concerns over rising prices and sticky inflation.
Action to take: Even with shares bouncing after earnings, McDonald’s has traded largely flat over the past year. Shares are fairly valued at 23 times earnings, but the company’s 32% profit margin looks strong here.
Plus, McDonald’s is a dividend growth play, with shares currently paying 2.4%.
For traders, with shares moving higher after earnings, a push to the 52-week high may be in play. The April $315 calls, last trading for about $5.20, may see further mid-double-digit returns from here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.