Critical Analysis: Shake Shack (NYSE:SHAK) vs. Rave Restaurant Group (NASDAQ:RAVE)

Rave Restaurant Group (NASDAQ:RAVE) and Shake Shack (NYSE:SHAK) are both retail/wholesale companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, risk, earnings, dividends, analyst recommendations, institutional ownership and profitability.

Institutional & Insider Ownership

15.1% of Rave Restaurant Group shares are held by institutional investors. Comparatively, 86.1% of Shake Shack shares are held by institutional investors. 28.0% of Rave Restaurant Group shares are held by insiders. Comparatively, 8.5% of Shake Shack shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Rave Restaurant Group	23.04%	19.70%	17.07%
Shake Shack	3.16%	11.08%	3.23%

Analyst Ratings

This is a summary of current ratings and recommmendations for Rave Restaurant Group and Shake Shack, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Rave Restaurant Group	0	0	1	0	3.00
Shake Shack	1	14	10	1	2.42

Shake Shack has a consensus price target of $116.64, indicating a potential upside of 43.37%. Given Shake Shack’s higher possible upside, analysts plainly believe Shake Shack is more favorable than Rave Restaurant Group.

Risk & Volatility

Rave Restaurant Group has a beta of 0.36, meaning that its stock price is 64% less volatile than the S&P 500. Comparatively, Shake Shack has a beta of 1.73, meaning that its stock price is 73% more volatile than the S&P 500.

Earnings & Valuation

This table compares Rave Restaurant Group and Shake Shack”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Rave Restaurant Group	$12.38 million	2.92	$2.70 million	$0.20	12.70
Shake Shack	$1.45 billion	2.40	$45.72 million	$1.09	74.64

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

Summary

Shake Shack beats Rave Restaurant Group on 9 of the 15 factors compared between the two stocks.

About Rave Restaurant Group

Rave Restaurant Group, Inc., together with its subsidiaries, engages in the operation and franchising of pizza buffet, delivery/carry-out (delco), and express restaurants under the Pizza Inn and Pie Five trademarks in the United States and internationally. The company operates through three segments: Pizza Inn Franchising, Pie Five Franchising, and Company-Owned Restaurants. Its buffet restaurants are located in free standing buildings or strip centers in retail developments that offer dine-in, carryout, and catering services, as well as delivery services. The company’s delco restaurants provide delivery and carryout services and are located in shopping centers or other in-line retail developments. Its Express restaurants serve customers through various non-traditional points of sale and are located in convenience stores, food courts, college campuses, airport terminals, travel plazas, athletic facilities, or other commercial facilities. The company’s Pizza Inn Express restaurants serve customers through a non-traditional, licensed, pizza-only model called Pizza Inn Express, located at production-oriented facilities. In addition, it operates and franchises fast casual restaurants under the Pie Five Pizza Company or Pie Five trademarks. The company was formerly known as Pizza Inn Holdings, Inc. and changed its name to Rave Restaurant Group, Inc. in January 2015. Rave Restaurant Group, Inc. was founded in 1958 and is based in The Colony, Texas.

About Shake Shack

Shake Shack Inc. owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally. Its Shacks offers hamburgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. The company was founded in 2001 and is headquartered in New York, New York.