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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Driven Brands Holdings (NASDAQ:DRVN) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Driven Brands Holdings is:

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

0.057 = US$311m ÷ (US$5.9b - US$439m) (Based on the trailing twelve months to March 2024).

So, Driven Brands Holdings has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.7%.

See our latest analysis for Driven Brands Holdings

In the above chart we have measured Driven Brands Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Driven Brands Holdings for free.

What Does the ROCE Trend For Driven Brands Holdings Tell Us?

The returns on capital haven't changed much for Driven Brands Holdings in recent years. The company has employed 306% more capital in the last five years, and the returns on that capital have remained stable at 5.7%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Driven Brands Holdings' ROCE

In summary, Driven Brands Holdings has simply been reinvesting capital and generating the same low rate of return as before. And in the last three years, the stock has given away 59% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know about the risks facing Driven Brands Holdings, we've discovered 1 warning sign that you should be aware of.

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.

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