Analyzing Kona Grill (KONA) and Diversified Restaurant (NASDAQ:SAUC)

Diversified Restaurant (NASDAQ: SAUC) and Kona Grill (NASDAQ:KONA) are both small-cap retail/wholesale companies, but which is the superior investment? We will compare the two companies based on the strength of their profitability, earnings, valuation, analyst recommendations, risk, institutional ownership and dividends.

Insider and Institutional Ownership

8.5% of Diversified Restaurant shares are owned by institutional investors. Comparatively, 37.2% of Kona Grill shares are owned by institutional investors. 48.2% of Diversified Restaurant shares are owned by company insiders. Comparatively, 29.2% of Kona Grill shares are owned 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.

Profitability

This table compares Diversified Restaurant and Kona Grill’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%
Kona Grill -15.32% -55.38% -12.50%

Analyst Ratings

This is a summary of recent ratings and price targets for Diversified Restaurant and Kona Grill, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diversified Restaurant 0 0 1 0 3.00
Kona Grill 0 2 3 0 2.60

Diversified Restaurant currently has a consensus target price of $3.50, indicating a potential upside of 111.45%. Kona Grill has a consensus target price of $6.17, indicating a potential upside of 262.75%. Given Kona Grill’s higher probable upside, analysts plainly believe Kona Grill is more favorable than Diversified Restaurant.

Valuation and Earnings

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Diversified Restaurant $166.52 million 0.27 -$6.00 million ($0.19) -8.71
Kona Grill $169.52 million 0.10 -$21.62 million ($2.67) -0.64

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

Volatility & Risk

Diversified Restaurant has a beta of 1.3, meaning that its share price is 30% more volatile than the S&P 500. Comparatively, Kona Grill has a beta of 0.19, meaning that its share price is 81% less volatile than the S&P 500.

Summary

Diversified Restaurant beats Kona Grill on 9 of the 13 factors compared between the two stocks.

Diversified Restaurant 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.

Kona Grill Company Profile

Kona Grill, Inc. owns and operates upscale casual dining restaurants under the name Kona Grill. The Company owns and operates approximately 40 restaurants in 20 states throughout the United States and Puerto Rico. Its high-volume upscale casual restaurants feature a global menu of contemporary American favorites and sushi. Its menu items are prepared from scratch at each restaurant location and incorporate over 40 signature sauces and dressings. It also offers a full service bar offering a range assortment of wines, specialty cocktails and beers. Its restaurants seat an average of approximately 290 customers and comprise multiple dining areas. Its dining area, full-service bar, indoor/outdoor patio and sushi bar provide a choice of atmospheres and a range of environments. It locates its restaurants in various areas, such as retail centers, shopping malls, urban entertainment districts and lifestyle centers that are situated near commercial office space and residential housing.

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