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Slowing Rates Of Return At Bloomin' Brands (NASDAQ:BLMN) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, the ROCE of Bloomin' Brands (NASDAQ:BLMN) looks decent, right now, so lets see what the trend of returns can tell us.

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)

0.15 = US$339m ÷ (US$3.2b - US$911m) (Based on the trailing twelve months to September 2022).

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Thus, Bloomin' Brands has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 11% it's much better.

Check out our latest analysis for Bloomin' Brands

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In the above chart we have measured Bloomin' Brands' 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 Bloomin' Brands here for free.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 31% in that time. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Bloomin' Brands' ROCE

In the end, Bloomin' Brands has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 8.2% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a final note, we've found 5 warning signs for Bloomin' Brands that we think you should be aware of.

While Bloomin' Brands may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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