What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at Bloomin' Brands (NASDAQ:BLMN) and its trend of ROCE, we really liked what we saw.
Understanding 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. Analysts use this formula to calculate it for Bloomin' Brands:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$361m ÷ (US$3.2b - US$920m) (Based on the trailing twelve months to March 2023).
Thus, Bloomin' Brands has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 8.8% it's much better.
In the above chart we have measured Bloomin' Brands' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Bloomin' Brands Tell Us?
The trends we've noticed at Bloomin' Brands are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 30%. So we're very much inspired by what we're seeing at Bloomin' Brands thanks to its ability to profitably reinvest capital.
Our Take On Bloomin' Brands' ROCE
To sum it up, Bloomin' Brands has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 31% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
One more thing, we've spotted 4 warning signs facing Bloomin' Brands that you might find interesting.
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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