El Pollo Loco Holdings (NASDAQ: LOCO) and Diversified Restaurant Holdings (NASDAQ:SAUC) are both small-cap retail/wholesale companies, but which is the better investment? We will compare the two companies based on the strength of their earnings, valuation, dividends, risk, profitability, analyst recommendations and institutional ownership.

Analyst Ratings

This is a summary of recent recommendations and price targets for El Pollo Loco Holdings and Diversified Restaurant Holdings, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
El Pollo Loco Holdings 0 4 1 0 2.20
Diversified Restaurant Holdings 0 0 1 0 3.00

El Pollo Loco Holdings currently has a consensus price target of $14.33, indicating a potential upside of 26.28%. Diversified Restaurant Holdings has a consensus price target of $3.50, indicating a potential upside of 72.41%. Given Diversified Restaurant Holdings’ stronger consensus rating and higher possible upside, analysts clearly believe Diversified Restaurant Holdings is more favorable than El Pollo Loco Holdings.

Earnings and Valuation

This table compares El Pollo Loco Holdings and Diversified Restaurant Holdings’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
El Pollo Loco Holdings $393.64 million 1.11 $62.17 million $0.46 24.67
Diversified Restaurant Holdings $166.70 million 0.32 $20.34 million ($0.22) -9.23

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

Volatility & Risk

El Pollo Loco Holdings has a beta of 0.31, indicating that its stock price is 69% less volatile than the S&P 500. Comparatively, Diversified Restaurant Holdings has a beta of 1.35, indicating that its stock price is 35% more volatile than the S&P 500.

Institutional and Insider Ownership

77.2% of El Pollo Loco Holdings shares are held by institutional investors. Comparatively, 11.1% of Diversified Restaurant Holdings shares are held by institutional investors. 45.9% of El Pollo Loco Holdings shares are held by insiders. Comparatively, 48.2% of Diversified Restaurant Holdings shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Profitability

This table compares El Pollo Loco Holdings and Diversified Restaurant Holdings’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
El Pollo Loco Holdings 4.66% 9.56% 5.52%
Diversified Restaurant Holdings -3.39% -60.83% -0.51%

Summary

El Pollo Loco Holdings beats Diversified Restaurant Holdings on 8 of the 12 factors compared between the two stocks.

About El Pollo Loco Holdings

El Pollo Loco Holdings, Inc. specializes in fire-grilling citrus-marinated chicken and operates in the limited service restaurant (LSR) segment. The Company’s menu features its signature product, citrus-marinated fire-grilled chicken, and a range of Mexican-inspired entrees that it creates from chicken. Every day in every restaurant, the Company marinates and fire-grills its chicken over open flames, and hand-slices whole tomatoes, avocados, serrano peppers and cilantro to make its salsas, guacamole and cilantro dressings from scratch. The Company also offers burritos, salads, tostadas, bowls, stuffed quesadillas and chicken entrees. The Company’s entrees include Chicken Avocado Burrito, Under 500 Calorie entrees, Ultimate Pollo Bowl, and Stuffed Chicken Avocado Quesadilla. As of December 28, 2016, the Company had 460 restaurants, consisting of 201 Company-operated and 259 franchised restaurants. The Company also offers additional proteins, such as shrimp, carnitas and beef.

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.

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