Dine Brands Global, Inc.'s (NYSE:DIN) Shares Bounce 25% But Its Business Still Trails The Market

Those holding Dine Brands Global, Inc. (NYSE:DIN) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.

In spite of the firm bounce in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Dine Brands Global as a highly attractive investment with its 7.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

We've discovered 3 warning signs about Dine Brands Global. View them for free.

While the market has experienced earnings growth lately, Dine Brands Global's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Dine Brands Global

Keen to find out how analysts think Dine Brands Global's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Dine Brands Global's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 39% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 6.6% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 13%, which is noticeably more attractive.

In light of this, it's understandable that Dine Brands Global's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Dine Brands Global's P/E

Shares in Dine Brands Global are going to need a lot more upward momentum to get the company's P/E out of its slump. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Dine Brands Global maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Dine Brands Global (1 can't be ignored!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.