Arcos Dorados Holdings (NYSE: ARCO) and Sonic Corp. (NASDAQ:SONC) 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 analyst recommendations, profitabiliy, risk, valuation, earnings, institutional ownership and dividends.

Volatility & Risk

Arcos Dorados Holdings has a beta of 2.12, suggesting that its stock price is 112% more volatile than the S&P 500. Comparatively, Sonic Corp. has a beta of 1.77, suggesting that its stock price is 77% more volatile than the S&P 500.

Profitability

This table compares Arcos Dorados Holdings and Sonic Corp.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Arcos Dorados Holdings 3.39% 28.58% 6.92%
Sonic Corp. 13.23% -44.21% 9.71%

Earnings & Valuation

This table compares Arcos Dorados Holdings and Sonic Corp.’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Arcos Dorados Holdings $3.05 billion 0.58 $278.00 million $0.49 17.24
Sonic Corp. $515.82 million 2.00 $158.68 million $1.50 16.45

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

Analyst Recommendations

This is a summary of current ratings and recommmendations for Arcos Dorados Holdings and Sonic Corp., as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arcos Dorados Holdings 0 0 2 0 3.00
Sonic Corp. 2 7 2 0 2.00

Arcos Dorados Holdings presently has a consensus price target of $9.00, suggesting a potential upside of 6.51%. Sonic Corp. has a consensus price target of $27.00, suggesting a potential upside of 9.44%. Given Sonic Corp.’s higher possible upside, analysts clearly believe Sonic Corp. is more favorable than Arcos Dorados Holdings.

Institutional and Insider Ownership

40.6% of Arcos Dorados Holdings shares are owned by institutional investors. Comparatively, 97.2% of Sonic Corp. shares are owned by institutional investors. 6.2% of Sonic Corp. shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Dividends

Sonic Corp. pays an annual dividend of $0.56 per share and has a dividend yield of 2.3%. Arcos Dorados Holdings does not pay a dividend. Sonic Corp. pays out 37.3% of its earnings in the form of a dividend. Arcos Dorados Holdings has increased its dividend for 3 consecutive years.

Summary

Sonic Corp. beats Arcos Dorados Holdings on 9 of the 16 factors compared between the two stocks.

About Arcos Dorados Holdings

Arcos Dorados Holdings Inc. is a McDonald’s franchisee. The Company operates or franchises over 2,140 McDonald’s-branded restaurants. It divides its operations into four geographical divisions: Brazil; the Caribbean division, consisting of Aruba, Colombia, Curacao, French Guiana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the United States Virgin Islands of Saint Croix and Saint Thomas, and Venezuela; the North Latin America division (NOLAD), consisting of Costa Rica, Mexico and Panama, and the South Latin America division (SLAD), consisting of Argentina, Chile, Ecuador, Peru and Uruguay. Its menus feature over three tiers of products: entry-level options, such as its Big Pleasures, Small Prices offerings and Almuerzos Colombianos (Colombian Lunches) in Colombia; core menu options, such as the Big Mac, Happy Meal and Quarter Pounder, and premium options, such as Big Tasty or Angus premium hamburgers and chicken sandwiches and low-calorie or low-sodium products.

About Sonic Corp.

Sonic Corp. operates and franchises the chain of drive-thru restaurants (Sonic Drive-Ins) in the United States. As of August 31, 2016, 3,557 Sonic Drive-Ins were in operation from coast to coast in 45 states, consisting of 345 Company drive-thrus and 3,212 franchise drive-thrus. As of August 31, 2016, its restaurant design and construction consisted of a kitchen housed in a one-story building, which was approximately 1,500 square feet, flanked by canopy-covered rows of 16 to 24 parking spaces, with each space having its own payment terminal, intercom speaker system and menu board. At a Sonic Drive-In, a customer drives into one of the parking spaces, orders through the intercom speaker system and has the food delivered by a carhop and Sonic Drive-Ins also include a drive-thru lane and patio seating to provide customers with alternative dining options. Its food items include specialty drinks, such as cherry limeades and slushes, ice cream desserts and chicken sandwiches and hamburgers.

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