Best Stock to Buy Right Now: Domino's Pizza vs. McDonald's

Many people analyze a company's prospects in isolation. However, it's useful to compare stocks in the same sector to see which provides a better investment opportunity. To make the determination, you can consider various factors, including a company's prospects and valuation.

Domino's Pizza (NASDAQ: DPZ) and McDonald's (NYSE: MCD) have become well-recognized companies. But which of these two consumer discretionary stocks deserves your investment over the other one?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Domino's Pizza

Domino's Pizza hasn't seen a slowdown due to stressed consumers. The company was founded more than six decades ago and has more than 21,000 locations throughout the world.

And it continues to open new locations in a cost-efficient manner while also minimizing capital expenditures. Domino's primarily franchises its restaurants and collects a portion of the sales. It also sells the franchisees' food, equipment, and supplies.

It's not just the ubiquity that has made it a popular eating destination. Domino's Pizza offers carryout items quickly and at reasonable prices. That's proven to be a good combination with people. It's particularly appealing when people's wallets have become stretched from broad-based inflation.

You can see that in its sales results. While other restaurants have felt the effects of a pinched consumer, Domino's same-store sales (comps) have been increasing. In its fiscal third quarter (ended Sept. 8, 2024), U.S. restaurant comps gained 3% and were up 0.8% internationally.

It's a profitable business, too. Third-quarter operating income, excluding foreign currency exchange effects, was up 5.7%. That might not sound great, but the restaurant industry has been dealing with higher costs for things like food and labor. Management expects at least 8% annual growth from 2026 to 2028.

McDonald's

McDonald's has a large global presence. However, it doesn't own most of its restaurants. Out of the nearly 43,000 locations, about 95% were franchised.

McDonald's became popular worldwide due to its fast service and low prices. However, management got away from its roots and drove away its core, cost-conscious customers at a time when they were dealing with higher prices, including food and rent.

Management tried to rectify the situation by emphasizing value items. But these haven't driven sales growth. In fact, comps have been declining. Fourth-quarter comps dropped 0.4%, and they were down 1.4% in the U.S. Although guest counts were up slightly in domestic restaurants, people spent less as the average check fell.

Profitability has been hurt. The quarterly operating income rose just 3% on a constant-currency basis.

The call

Domino's Pizza has continued to draw customers and drive sales. It's been tough sledding for McDonald's, however. It's trying to win back customers but faces stiff competition.

Domino's stock has gained 9.8% over the last year through Feb. 7. McDonald's shares appreciated just 1.7% during this time.

Domino's trades at a slightly richer valuation. The shares have a price-to-earnings (P/E) ratio of 29 compared to 26 for McDonald's stock. However, Domino's has been performing better than McDonald's and seemingly deserves a higher valuation.

I'd pick Domino's shares right now. That's based on Domino's ability to attract customers and management's ability to execute its Hungry for MORE strategy (more sales, more stores, more profits) through its expanded food offerings, convenience, and value.

Should you invest $1,000 in Domino's Pizza right now?

Before you buy stock in Domino's Pizza, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Domino's Pizza wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $813,868!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of February 7, 2025

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Domino's Pizza. The Motley Fool has a disclosure policy.