Returns At Driven Brands Holdings (NASDAQ:DRVN) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Driven Brands Holdings (NASDAQ:DRVN), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Driven Brands Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.056 = US$346m ÷ (US$6.7b - US$527m) (Based on the trailing twelve months to April 2023).

So, Driven Brands Holdings has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 8.5%.

See our latest analysis for Driven Brands Holdings

Above you can see how the current ROCE for Driven Brands Holdings 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 Driven Brands Holdings.

SWOT Analysis for Driven Brands Holdings

What Can We Tell From Driven Brands Holdings' ROCE Trend?

The returns on capital haven't changed much for Driven Brands Holdings in recent years. Over the past four years, ROCE has remained relatively flat at around 5.6% and the business has deployed 360% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In conclusion, Driven Brands Holdings has been investing more capital into the business, but returns on that capital haven't increased. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Driven Brands Holdings, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

While Driven Brands Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.