A Wall Street analyst sees 25% upside in McDonald's stock price.

UBSGroup( UBS )Analyst Dennis Geiger(Dennis Geiger)Recognize.McDonald's((NYSE: MCD)It is well-positioned to expand its market share. The fast-food chain is facing a tough economic environment in some international markets, and spending by low-income consumers in the U.S. is weakening. Still, Geiger believes McDonald's is one of the best positioned restaurant chains to weather the storm.

UBS maintained a buy rating on McLean shares Friday, while slightly lowering its price target to $335 to reflect these challenges. The new price target still suggests McDonald's shares have about 25% of upside over the next 12 months or so.

Rising prices are starting to cause problems.

McDonald's chief financial officer Ian Borden revealed last month that low-income Americans are beginning to adjust their behavior in response to rising prices. More and more people are choosing to eat at home instead of McDonald's, whereas McDonald's focuses on attracting cost-conscious consumers.

UBS's Geiger doesn't deny the trend, but he still expects McDonald's sales trajectory to improve this year. Geiger noted that McDonald's scored high in a recent UBS survey of fast-food restaurants.

Slower sales growth

McDonald's comparable sales increased in 2023, but at a much slower rate than in 2022. In the U.S., last year's comparable sales growth was 4.31 TP3T, down from 10.31 TP3T in 2022, and in international markets where McDonald's doesn't have its own pre-prepared restaurants, comparable sales growth was only 0.71 TP3T.

McDonald's growth will be slower in 2024 because of the problems it faces in the U.S. and abroad.

Is McDonald's stock worth buying?

McDonald's has thrived in most economic environments thanks to its focus on value, but the stock has risen steadily over the years, pushing valuations to high levels.

McDonald's shares trade at 24 times trailing earnings. This valuation seems a bit high given the company's lack of growth. McDonald's needs to find a way to increase its growth rate this year to keep the stock price on track.

Should you invest $1,000 in McDonald's now?

Consider this before you buy McDonald's stock:

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A Wall Street Analyst Says McDonald's Stock Has 25% of Upside was originally published by The Motley Fool.