Darden Restaurants (NYSE: DRI) and Kona Grill (NASDAQ:KONA) are both retail/wholesale companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, analyst recommendations, valuation, institutional ownership, dividends, risk and profitability.

Risk and Volatility

Darden Restaurants has a beta of 0.24, meaning that its share price is 76% less volatile than the S&P 500. Comparatively, Kona Grill has a beta of 0.34, meaning that its share price is 66% less volatile than the S&P 500.

Earnings and Valuation

This table compares Darden Restaurants and Kona Grill’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Darden Restaurants $7.39 billion 1.33 $975.90 million $3.87 20.50
Kona Grill $179.15 million 0.21 $3.91 million ($2.58) -1.45

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

Dividends

Darden Restaurants pays an annual dividend of $2.52 per share and has a dividend yield of 3.2%. Kona Grill does not pay a dividend. Darden Restaurants pays out 65.1% of its earnings in the form of a dividend.

Institutional and Insider Ownership

89.9% of Darden Restaurants shares are held by institutional investors. Comparatively, 50.1% of Kona Grill shares are held by institutional investors. 0.6% of Darden Restaurants shares are held by company insiders. Comparatively, 29.2% of Kona Grill shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Darden Restaurants and Kona Grill, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Darden Restaurants 1 12 10 0 2.39
Kona Grill 0 2 3 0 2.60

Darden Restaurants presently has a consensus price target of $87.52, suggesting a potential upside of 10.31%. Kona Grill has a consensus price target of $6.67, suggesting a potential upside of 77.78%. Given Kona Grill’s stronger consensus rating and higher probable upside, analysts plainly believe Kona Grill is more favorable than Darden Restaurants.

Profitability

This table compares Darden Restaurants and Kona Grill’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Darden Restaurants 6.60% 26.06% 10.47%
Kona Grill -14.98% -39.42% -11.31%

Summary

Darden Restaurants beats Kona Grill on 10 of the 15 factors compared between the two stocks.

About Darden Restaurants

Darden Restaurants, Inc. is a full-service restaurant company. The Company owned and operated 1,536 restaurants through its subsidiaries in the United States and Canada, as of May 29, 2016. The Company’s segments include Olive Garden, LongHorn Steakhouse, Fine Dining (which includes The Capital Grille, and Eddie V’s Prime Seafood and Wildfish Seafood Grille (Eddie V’s)) and Other Business (which includes Yard House, Seasons 52, Bahama Breeze, consumer-packaged goods and franchise revenues). As of May 29, 2016, the Company also had 50 restaurants operated by independent third parties pursuant to area development and franchise agreements. Olive Garden’s menu includes a range of authentic Italian foods featuring fresh ingredients and a selection of imported Italian wines. LongHorn Steakhouse restaurants feature a range of menu items, including fresh steaks and chicken, as well as salmon, shrimp, ribs, pork chops, burgers and prime rib.

About Kona Grill

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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