DineEquity (NYSE: DIN) and Diversified Restaurant Holdings (NASDAQ:SAUC) are both small-cap retail/wholesale companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, dividends, institutional ownership, earnings, analyst recommendations, valuation and risk.
Insider and Institutional Ownership
88.6% of DineEquity shares are held by institutional investors. Comparatively, 5.0% of Diversified Restaurant Holdings shares are held by institutional investors. 2.2% of DineEquity shares are held by insiders. Comparatively, 48.2% of Diversified Restaurant Holdings shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.
Dividends
DineEquity pays an annual dividend of $3.88 per share and has a dividend yield of 9.5%. 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. DineEquity has raised its dividend for 2 consecutive years.
Profitability
This table compares DineEquity and Diversified Restaurant Holdings’ net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| DineEquity | 13.02% | 38.34% | 4.35% |
| Diversified Restaurant Holdings | -3.39% | -60.83% | -0.51% |
Valuation & Earnings
This table compares DineEquity and Diversified Restaurant Holdings’ gross revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | EBITDA | Earnings Per Share | Price/Earnings Ratio | |
| DineEquity | $621.56 million | 1.19 | $234.57 million | $4.48 | 9.15 |
| Diversified Restaurant Holdings | $166.70 million | 0.36 | $20.34 million | ($0.22) | -10.18 |
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.
Volatility and Risk
DineEquity has a beta of 0.39, meaning that its share price is 61% less volatile than the S&P 500. Comparatively, Diversified Restaurant Holdings has a beta of 1.35, meaning that its share price is 35% more volatile than the S&P 500.
Analyst Recommendations
This is a breakdown of current ratings and price targets for DineEquity and Diversified Restaurant Holdings, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| DineEquity | 0 | 4 | 3 | 0 | 2.43 |
| Diversified Restaurant Holdings | 0 | 0 | 1 | 0 | 3.00 |
DineEquity currently has a consensus price target of $57.00, suggesting a potential upside of 39.06%. Diversified Restaurant Holdings has a consensus price target of $3.50, suggesting a potential upside of 56.25%. Given Diversified Restaurant Holdings’ stronger consensus rating and higher possible upside, analysts plainly believe Diversified Restaurant Holdings is more favorable than DineEquity.
Summary
DineEquity beats Diversified Restaurant Holdings on 11 of the 16 factors compared between the two stocks.
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.
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.
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