Investors Will Want Dine Brands Global's (NYSE:DIN) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Dine Brands Global (NYSE:DIN) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Dine Brands Global, this is the formula:

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

0.13 = US$196m ÷ (US$1.9b - US$344m) (Based on the trailing twelve months to June 2022).

Thus, Dine Brands Global has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Hospitality industry.

Our analysis indicates that DIN is potentially undervalued!

Above you can see how the current ROCE for Dine Brands Global compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Dine Brands Global here for free.

What The Trend Of ROCE Can Tell Us

You'd find it hard not to be impressed with the ROCE trend at Dine Brands Global. We found that the returns on capital employed over the last five years have risen by 21%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 22% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

In the end, Dine Brands Global has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 82% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 3 warning signs we've spotted with Dine Brands Global (including 1 which is a bit unpleasant) .

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.