There's No Escaping Dine Brands Global, Inc.'s (NYSE:DIN) Muted Earnings

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Dine Brands Global, Inc. (NYSE:DIN) as a highly attractive investment with its 6.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Dine Brands Global hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Dine Brands Global

Want the full picture on analyst estimates for the company? Then our free report on Dine Brands Global will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Dine Brands Global's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. This means it has also seen a slide in earnings over the longer-term as EPS is down 27% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 3.0% over the next year. With the market predicted to deliver 14% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Dine Brands Global is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Dine Brands Global's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Dine Brands Global (including 1 which is potentially serious).

You might be able to find a better investment than Dine Brands Global. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.