Critical Analysis: Chuy’s (CHUY) versus Diversified Restaurant (NASDAQ:SAUC)

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

Profitability

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

Net Margins Return on Equity Return on Assets
Diversified Restaurant -12.36% -4.31% -1.03%
Chuy’s 7.83% 9.40% 6.28%

Earnings and Valuation

This table compares Diversified Restaurant and Chuy’s’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Diversified Restaurant $165.46 million 0.22 -$20.45 million ($0.05) -27.20
Chuy’s $369.59 million 1.22 $28.95 million $0.96 27.71

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

Risk and Volatility

Diversified Restaurant has a beta of 1.23, suggesting that its stock price is 23% more volatile than the S&P 500. Comparatively, Chuy’s has a beta of -0.33, suggesting that its stock price is 133% less volatile than the S&P 500.

Institutional and Insider Ownership

10.6% of Diversified Restaurant shares are held by institutional investors. Comparatively, 95.6% of Chuy’s shares are held by institutional investors. 48.2% of Diversified Restaurant shares are held by company insiders. Comparatively, 3.3% of Chuy’s shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Analyst Ratings

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

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diversified Restaurant 0 0 0 0 N/A
Chuy’s 0 7 2 0 2.22

Chuy’s has a consensus target price of $26.89, suggesting a potential upside of 1.09%. Given Chuy’s’ higher probable upside, analysts clearly believe Chuy’s is more favorable than Diversified Restaurant.

Summary

Chuy’s beats Diversified Restaurant on 11 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.

Chuy’s Company Profile

Chuy's Holdings, Inc., through its subsidiaries, owns and operates restaurants under the Chuy's name in Texas and 19 states in the Southeastern and Midwestern United States. As of December 31, 2017, the company operated 91 Chuy's restaurants in 19 states. Chuy's Holdings, Inc. was founded in 1982 and is headquartered in Austin, Texas.

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