Diversified Restaurant (SAUC) versus Habit Restaurants (HABT) Critical Review

Diversified Restaurant (NASDAQ: SAUC) and Habit Restaurants (NASDAQ:HABT) are both small-cap retail/wholesale companies, but which is the superior business? We will contrast the two companies based on the strength of their analyst recommendations, risk, profitability, earnings, institutional ownership, valuation and dividends.

Volatility & Risk

Diversified Restaurant has a beta of 1.3, meaning that its stock price is 30% more volatile than the S&P 500. Comparatively, Habit Restaurants has a beta of 0.88, meaning that its stock price is 12% less volatile than the S&P 500.

Insider and Institutional Ownership

8.5% of Diversified Restaurant shares are held by institutional investors. Comparatively, 76.0% of Habit Restaurants shares are held by institutional investors. 48.2% of Diversified Restaurant shares are held by company insiders. Comparatively, 16.1% of Habit Restaurants shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares Diversified Restaurant and Habit Restaurants’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Diversified Restaurant $166.52 million 0.26 -$6.00 million ($0.19) -8.53
Habit Restaurants $283.81 million 0.82 $4.66 million $0.23 38.70

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

Profitability

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

Net Margins Return on Equity Return on Assets
Diversified Restaurant -3.04% -4.31% 0.11%
Habit Restaurants 1.46% 4.09% 1.75%

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Diversified Restaurant and Habit Restaurants, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diversified Restaurant 0 0 1 0 3.00
Habit Restaurants 0 5 3 0 2.38

Diversified Restaurant currently has a consensus price target of $3.50, suggesting a potential upside of 116.05%. Habit Restaurants has a consensus price target of $15.94, suggesting a potential upside of 79.07%. Given Diversified Restaurant’s stronger consensus rating and higher probable upside, research analysts plainly believe Diversified Restaurant is more favorable than Habit Restaurants.

Summary

Habit Restaurants beats Diversified Restaurant on 10 of the 14 factors compared between the two stocks.

About Diversified Restaurant

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 Habit Restaurants

The Habit Restaurants, Inc. (Habit Burger Grill) is a fast casual restaurant company. The Company is engaged in preparing made-to-order char-grilled burgers and sandwiches featuring tri-tip steak, grilled chicken and sushi-grade albacore tuna cooked over an open flame. In addition, it offers sides, shakes and malts. The Company prepares its burgers with char-grilled preparation, topped with caramelized onions, melted cheese, lettuce and tomatoes. It operates a range of restaurant formats, including end-cap, free-standing, inline, end-cap drive-thru and traditional stand-alone drive-in, primarily within suburban shopping centers and retail settings. As of December 27, 2016, the Company had 172 locations in 15 markets in 10 states and the United Arab Emirates, including franchised/licensed locations (excluding six licensed locations in Santa Barbara County, California).

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