Luby’s (NYSE: LUB) and El Pollo Loco (NASDAQ:LOCO) are both small-cap retail/wholesale companies, but which is the better stock? We will contrast the two businesses based on the strength of their valuation, profitability, dividends, analyst recommendations, institutional ownership, earnings and risk.

Insider & Institutional Ownership

41.2% of Luby’s shares are held by institutional investors. Comparatively, 78.1% of El Pollo Loco shares are held by institutional investors. 35.2% of Luby’s shares are held by company insiders. Comparatively, 45.9% of El Pollo Loco shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Luby’s and El Pollo Loco, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Luby’s 0 0 0 0 N/A
El Pollo Loco 0 3 1 0 2.25

El Pollo Loco has a consensus target price of $13.00, indicating a potential upside of 25.60%. Given El Pollo Loco’s higher probable upside, analysts clearly believe El Pollo Loco is more favorable than Luby’s.

Profitability

This table compares Luby’s and El Pollo Loco’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Luby’s -6.19% -6.47% -4.08%
El Pollo Loco 2.27% 9.14% 5.37%

Earnings & Valuation

This table compares Luby’s and El Pollo Loco’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Luby’s $376.03 million 0.22 -$23.26 million ($0.79) -3.56
El Pollo Loco $380.12 million 1.05 $18.33 million $0.23 45.00

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

Risk and Volatility

Luby’s has a beta of 0.58, suggesting that its share price is 42% less volatile than the S&P 500. Comparatively, El Pollo Loco has a beta of 0.35, suggesting that its share price is 65% less volatile than the S&P 500.

Summary

El Pollo Loco beats Luby’s on 11 of the 12 factors compared between the two stocks.

About Luby’s

Luby’s, Inc., is a multi-branded company operating in the restaurant industry and in the contract food services industry. The Company is managed through three segments: Company-owned restaurants, franchise operations, and Culinary Contract Services (CSS). The company-owned restaurants brands are Luby’s Cafeteria, Fuddruckers, and Cheeseburger in Paradise with a couple of non-core restaurant locations under other brand names. As of August 31, 2016, the Company owned and operated 175 restaurants, with 127 in Texas and the remainder in other states. The Company offers franchises for the Fuddruckers brand. As of August 31, 2016, the number of franchised restaurants were 113. Culinary Contract Services consists of contract arrangements to manage food services for clients operating in three lines of business: healthcare, higher education, and corporate dining. As of August 31, 2016, the Company had 24 Culinary Contract Services contracts.

About El Pollo Loco

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.

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