Financial Analysis: Diversified Restaurant Holdings (SAUC) versus DineEquity (DIN)

Diversified Restaurant Holdings (NASDAQ: SAUC) and DineEquity (NYSE:DIN) are both small-cap retail/wholesale companies, but which is the better investment? We will contrast the two businesses based on the strength of their dividends, profitability, institutional ownership, earnings, valuation, risk and analyst recommendations.

Dividends

DineEquity pays an annual dividend of $3.88 per share and has a dividend yield of 9.8%. Diversified Restaurant Holdings does not pay a dividend. DineEquity pays out 86.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Diversified Restaurant Holdings has raised its dividend for 2 consecutive years.

Valuation & Earnings

This table compares Diversified Restaurant Holdings and DineEquity’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Diversified Restaurant Holdings $166.70 million 0.37 $20.34 million ($0.22) -10.55
DineEquity $621.56 million 1.15 $228.37 million $4.48 8.85

DineEquity has higher revenue and earnings than Diversified Restaurant Holdings. Diversified Restaurant Holdings is trading at a lower price-to-earnings ratio than DineEquity, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Diversified Restaurant Holdings and DineEquity’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Diversified Restaurant Holdings -3.39% -60.83% -0.51%
DineEquity 13.02% 38.34% 4.35%

Risk & Volatility

Diversified Restaurant Holdings has a beta of 1.35, indicating that its stock price is 35% more volatile than the S&P 500. Comparatively, DineEquity has a beta of 0.39, indicating that its stock price is 61% less volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings for Diversified Restaurant Holdings and DineEquity, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diversified Restaurant Holdings 0 0 1 0 3.00
DineEquity 0 4 3 0 2.43

Diversified Restaurant Holdings presently has a consensus price target of $3.50, indicating a potential upside of 50.86%. DineEquity has a consensus price target of $57.00, indicating a potential upside of 43.72%. Given Diversified Restaurant Holdings’ stronger consensus rating and higher probable upside, research analysts clearly believe Diversified Restaurant Holdings is more favorable than DineEquity.

Insider & Institutional Ownership

5.0% of Diversified Restaurant Holdings shares are held by institutional investors. Comparatively, 88.6% of DineEquity shares are held by institutional investors. 48.2% of Diversified Restaurant Holdings shares are held by company insiders. Comparatively, 2.2% of DineEquity shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Summary

DineEquity beats Diversified Restaurant Holdings on 10 of the 16 factors compared between the two stocks.

Diversified Restaurant Holdings Company Profile

Diversified Restaurant Holdings, Inc. (DRH) is a restaurant company. The Company is a franchisee of Buffalo Wild Wings (BWW).As of September 25, 2016, the Company operated 64 BWW restaurants, which are located in Michigan, Florida, Missouri, Illinois and Indiana. The BWW restaurants feature a range of menu items with a multimedia social environment, a bar and an open layout designed to create a dining experience for sports fans and families. Its guests have the option of watching various sporting events on projection screens or televisions. As of September 25, 2016, the BWW menu specialized in 21 sauces and seasonings with flavors ranging from Sweet BBQ to Blazin’. As of September 25, 2016, the restaurants offered 12 to 30 domestic and imported beers on tap, including several local or regional microbrews and a selection of bottled beer, wine and liquor.

DineEquity Company Profile

DineEquity, Inc., through its subsidiaries, owns and franchises the Applebee’s Neighborhood Grill & Bar (Applebee’s) concept in the bar and grill segment within the casual dining category of the restaurant industry, and owns, franchises and operates the International House of Pancakes (IHOP) concept in the family dining category of the restaurant industry. It operates through four segments: Franchise operations, Rental operations, Company restaurant operations and Financing operations. As of December 31, 2016, it had 3,749 restaurants. Applebee’s menu features a selection of grill and bar fare, such as appetizers, bar snacks, burgers, classic entrees and lighter fare, as well as cocktails, beers and desserts. As of December 31, 2016, IHOP franchise and area license restaurants were located in all 50 states within the United States, in the District of Columbia, in three United States territories and in 10 countries outside of the United States.

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