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

Institutional & Insider Ownership

11.1% of Diversified Restaurant Holdings shares are owned by institutional investors. Comparatively, 89.6% of Darden Restaurants shares are owned by institutional investors. 49.6% of Diversified Restaurant Holdings shares are owned by insiders. Comparatively, 0.6% of Darden Restaurants shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Dividends

Darden Restaurants pays an annual dividend of $2.52 per share and has a dividend yield of 3.1%. Diversified Restaurant Holdings does not pay a dividend. Darden Restaurants pays out 65.1% of its earnings in the form of a dividend.

Volatility and Risk

Diversified Restaurant Holdings has a beta of 1.38, meaning that its stock price is 38% more volatile than the S&P 500. Comparatively, Darden Restaurants has a beta of 0.25, meaning that its stock price is 75% less volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings and recommmendations for Diversified Restaurant Holdings and Darden Restaurants, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diversified Restaurant Holdings 0 0 1 0 3.00
Darden Restaurants 1 13 10 0 2.38

Diversified Restaurant Holdings currently has a consensus target price of $3.50, suggesting a potential upside of 102.31%. Darden Restaurants has a consensus target price of $87.52, suggesting a potential upside of 9.13%. Given Diversified Restaurant Holdings’ stronger consensus rating and higher probable upside, analysts plainly believe Diversified Restaurant Holdings is more favorable than Darden Restaurants.

Profitability

This table compares Diversified Restaurant Holdings and Darden Restaurants’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Diversified Restaurant Holdings -3.39% -60.83% -0.51%
Darden Restaurants 6.60% 26.06% 10.47%

Earnings and Valuation

This table compares Diversified Restaurant Holdings and Darden Restaurants’ top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Diversified Restaurant Holdings $166.70 million 0.28 $20.34 million ($0.22) -7.86
Darden Restaurants $7.39 billion 1.34 $975.90 million $3.87 20.72

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

Summary

Darden Restaurants beats Diversified Restaurant Holdings on 10 of the 15 factors compared between the two stocks.

About Diversified Restaurant Holdings

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.

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.

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