Shareholders of Bloomin' Brands would probably like to forget the past six months even happened. The stock dropped 35.5% and now trades at $6.16. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Bloomin' Brands, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Bloomin' Brands Will Underperform?
Even though the stock has become cheaper, we're cautious about Bloomin' Brands. Here are three reasons you should be careful with BLMN and a stock we'd rather own.
1. Flat Same-Store Sales Indicate Weak Demand
Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.
Bloomin' Brands’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Bloomin' Brands’s revenue to stall, close to This projection doesn't excite us and implies its newer menu offerings will not lead to better top-line performance yet.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Bloomin' Brands’s $2.2 billion of debt exceeds the $66.48 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $319.1 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Bloomin' Brands could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Bloomin' Brands can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Bloomin' Brands, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 6.6× forward P/E (or $6.16 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of Bloomin' Brands
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