DineEquity (NYSE: DIN) and Shake Shack (NYSE:SHAK) are both small-cap retail/wholesale companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, earnings, dividends, risk, valuation, institutional ownership and analyst recommendations.

Institutional and Insider Ownership

92.1% of DineEquity shares are held by institutional investors. Comparatively, 83.9% of Shake Shack shares are held by institutional investors. 2.2% of DineEquity shares are held by insiders. Comparatively, 34.9% of Shake Shack shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Earnings & Valuation

This table compares DineEquity and Shake Shack’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
DineEquity $621.56 million 1.38 $234.57 million $4.48 10.63
Shake Shack $315.90 million 3.12 $49.67 million $0.58 65.45

DineEquity has higher revenue and earnings than Shake Shack. DineEquity is trading at a lower price-to-earnings ratio than Shake Shack, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares DineEquity and Shake Shack’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
DineEquity 13.02% 38.34% 4.35%
Shake Shack 4.70% 8.71% 3.29%

Dividends

DineEquity pays an annual dividend of $3.88 per share and has a dividend yield of 8.1%. Shake Shack does not pay a dividend. DineEquity pays out 86.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Shake Shack has increased its dividend for 2 consecutive years.

Analyst Recommendations

This is a breakdown of current ratings and price targets for DineEquity and Shake Shack, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
DineEquity 0 4 3 0 2.43
Shake Shack 0 6 4 0 2.40

DineEquity presently has a consensus price target of $57.00, indicating a potential upside of 19.72%. Shake Shack has a consensus price target of $36.82, indicating a potential downside of 3.01%. Given DineEquity’s stronger consensus rating and higher probable upside, analysts clearly believe DineEquity is more favorable than Shake Shack.

Risk and Volatility

DineEquity has a beta of 0.52, suggesting that its share price is 48% less volatile than the S&P 500. Comparatively, Shake Shack has a beta of 1.38, suggesting that its share price is 38% more volatile than the S&P 500.

Summary

DineEquity beats Shake Shack on 10 of the 17 factors compared between the two stocks.

About DineEquity

DineEquity, Inc., through its subsidiaries, owns and franchises the Applebee’s Neighborhood Grill & Bar (Applebee’s) concept in the bar and grill segment within the casual dining category of the restaurant industry, and owns, franchises and operates the International House of Pancakes (IHOP) concept in the family dining category of the restaurant industry. It operates through four segments: Franchise operations, Rental operations, Company restaurant operations and Financing operations. As of December 31, 2016, it had 3,749 restaurants. Applebee’s menu features a selection of grill and bar fare, such as appetizers, bar snacks, burgers, classic entrees and lighter fare, as well as cocktails, beers and desserts. As of December 31, 2016, IHOP franchise and area license restaurants were located in all 50 states within the United States, in the District of Columbia, in three United States territories and in 10 countries outside of the United States.

About Shake Shack

Shake Shack Inc. operates roadside burger stands. The Company serves an American menu of burgers, hot dogs, crispy chicken, frozen custard, crinkle cut fries, shakes, beer and wine, among others. The Company’s signature items are its all-natural, hormone and antibiotic-free burgers, hot dogs, crispy chicken, crinkle cut fries, shakes and frozen custard. Its menu focuses on food and beverages, crafted from a range of classic American foods. The Company’s domestic menu includes a range of signature items, such as the ShackBurger, SmokeShack, Shack-cago Dog, ‘Shroom Burger, seasonal frozen custard, hand-spun shakes, concretes, ShackMeister Ale, and Shack Red and Shack White wines. As of December 28, 2016, it had 114 Shacks in 13 countries and 16 states, as well as the District of Columbia. Its burgers are made with a whole-muscle blend of all-natural, hormone and antibiotic-free Angus beef, ground fresh daily, cooked to order and served on a non-genetically modified organism potato bun.

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