Returns On Capital Are Showing Encouraging Signs At Bloomin' Brands (NASDAQ:BLMN)
There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Bloomin' Brands (NASDAQ:BLMN) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bloomin' Brands:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$364m ÷ (US$3.3b - US$912m) (Based on the trailing twelve months to June 2023).
Thus, Bloomin' Brands has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Hospitality industry.
View our latest analysis for Bloomin' Brands
Above you can see how the current ROCE for Bloomin' Brands compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Bloomin' Brands.
So How Is Bloomin' Brands' ROCE Trending?
Bloomin' Brands is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
In summary, it's great to see that Bloomin' Brands can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 19% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Bloomin' Brands does have some risks though, and we've spotted 2 warning signs for Bloomin' Brands that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
