Head to Head Review: Diversified Restaurant (SAUC) versus Luby's (LUB)

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

Profitability

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

Net Margins Return on Equity Return on Assets
Diversified Restaurant -3.04% -4.31% 0.11%
Luby's -6.01% -5.59% -3.50%

Institutional & Insider Ownership

8.4% of Diversified Restaurant shares are owned by institutional investors. Comparatively, 40.9% of Luby's shares are owned by institutional investors. 48.2% of Diversified Restaurant shares are owned by company insiders. Comparatively, 35.2% of Luby's shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Earnings and Valuation

This table compares Diversified Restaurant and Luby's’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Diversified Restaurant $166.52 million 0.25 -$6.00 million ($0.19) -8.00
Luby's $376.03 million 0.23 -$23.26 million ($0.75) -3.89

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

Risk and Volatility

Diversified Restaurant has a beta of 1.24, suggesting that its share price is 24% more volatile than the S&P 500. Comparatively, Luby's has a beta of 0.73, suggesting that its share price is 27% less volatile than the S&P 500.

Analyst Ratings

This is a summary of current ratings and price targets for Diversified Restaurant and Luby's, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diversified Restaurant 0 0 1 0 3.00
Luby's 0 0 0 0 N/A

Diversified Restaurant presently has a consensus target price of $3.50, suggesting a potential upside of 130.26%. Given Diversified Restaurant’s higher probable upside, research analysts clearly believe Diversified Restaurant is more favorable than Luby's.

Summary

Diversified Restaurant beats Luby's on 11 of the 13 factors compared between the two stocks.

About Diversified Restaurant

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.

About Luby's

Luby’s, Inc., is a multi-branded company operating in the restaurant industry and in the contract food services industry. The Company is managed through three segments: Company-owned restaurants, franchise operations, and Culinary Contract Services (CSS). The company-owned restaurants brands are Luby’s Cafeteria, Fuddruckers, and Cheeseburger in Paradise with a couple of non-core restaurant locations under other brand names. As of August 31, 2016, the Company owned and operated 175 restaurants, with 127 in Texas and the remainder in other states. The Company offers franchises for the Fuddruckers brand. As of August 31, 2016, the number of franchised restaurants were 113. Culinary Contract Services consists of contract arrangements to manage food services for clients operating in three lines of business: healthcare, higher education, and corporate dining. As of August 31, 2016, the Company had 24 Culinary Contract Services contracts.

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