Dine Brands has gotten torched over the last six months - since October 2024, its stock price has dropped 35.9% to $20.12 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Dine Brands, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Despite the more favorable entry price, we're cautious about Dine Brands. Here are three reasons why we avoid DIN and a stock we'd rather own.
Why Is Dine Brands Not Exciting?
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
1. Flat Same-Store Sales Indicate Weak Demand
Same-store sales is a key performance indicator used to measure organic growth at restaurants open for at least a year.
Dine Brands’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Dine Brands, its EPS declined by 5.1% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Dine Brands’s $1.63 billion of debt exceeds the $186.7 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $239.8 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. Dine 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 Dine Brands can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Dine Brands isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 3.5× forward price-to-earnings (or $20.12 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than Dine Brands
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