Mcdonald's Stock Falls Into Oversold Territory. Should You Buy It?
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McDonald's Stock Falls Into Oversold Territory. Should You Buy It?
When a stock falls sharply in value and becomes oversold, it could present a huge buying opportunity for long-term investors. One way to gauge whether a stock is oversold is by looking at its Relative Strength Index, or RSI. RSI looks at the stock's past performance – typically the past 14 trading days. When there has been an excess of selling versus buying and the RSI indicator falls below 30, that's a sign the stock is oversold.
As of the end of last week, shares of McDonald's (NYSE:MCD) were oversold with an RSI of 25. This year, shares of McDonald's are down 10% as boycotts in the Middle East have made investors concerned about the company's near-term results. And rising wages present another headwind for the fast-food giant, especially as it may be more difficult than in the past to simply pass on higher prices to customers and to still grow sales at a high rate.
Given these headwinds, it may not be surprising for a bit of a pullback in the share price. But even with the dip in price, the stock is trading at more than 23 times earnings. While that is below its five-year average price-to-earnings multiple of 28, it's still a bit high.
I would hold off on buying McDonald's stock just yet as it could be due for some challenging quarters this year and the stock's slide could still be in its early stages. This is a good long-term buy, but shares of McDonald's may go even lower this year.
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