Contrasting Arcos Dorados (ARCO) and Kona Grill (KONA)

Arcos Dorados (NYSE:ARCO) and Kona Grill (NASDAQ:KONA) are both small-cap retail/wholesale companies, but which is the superior investment? We will compare the two companies based on the strength of their risk, valuation, earnings, profitability, analyst recommendations, dividends and institutional ownership.

Insider and Institutional Ownership

35.4% of Arcos Dorados shares are held by institutional investors. Comparatively, 13.0% of Kona Grill shares are held by institutional investors. 29.2% of Kona Grill shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares Arcos Dorados and Kona Grill’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Arcos Dorados 2.82% 21.03% 5.69%
Kona Grill -11.21% -114.10% -10.76%

Earnings and Valuation

This table compares Arcos Dorados and Kona Grill’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Arcos Dorados $3.32 billion 0.46 $129.16 million $0.61 11.95
Kona Grill $179.08 million 0.15 -$23.43 million N/A N/A

Arcos Dorados has higher revenue and earnings than Kona Grill.

Dividends

Arcos Dorados pays an annual dividend of $0.10 per share and has a dividend yield of 1.4%. Kona Grill does not pay a dividend. Arcos Dorados pays out 16.4% of its earnings in the form of a dividend.

Volatility and Risk

Arcos Dorados has a beta of 1.22, indicating that its stock price is 22% more volatile than the S&P 500. Comparatively, Kona Grill has a beta of 0.39, indicating that its stock price is 61% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Arcos Dorados and Kona Grill, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arcos Dorados 0 0 2 0 3.00
Kona Grill 0 0 1 0 3.00

Arcos Dorados presently has a consensus target price of $12.00, indicating a potential upside of 64.61%. Kona Grill has a consensus target price of $5.00, indicating a potential upside of 152.53%. Given Kona Grill’s higher possible upside, analysts clearly believe Kona Grill is more favorable than Arcos Dorados.

Summary

Arcos Dorados beats Kona Grill on 10 of the 13 factors compared between the two stocks.

About Arcos Dorados

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's restaurants. It has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the United States Virgin Islands of St. Croix and St. Thomas, and Venezuela. As of April 27, 2018, the company operated or franchised approximately 2,100 McDonald's-branded restaurants. Arcos Dorados Holdings Inc. was founded in 2007 and is based in Montevideo, Uruguay.

About Kona Grill

Kona Grill, Inc. owns and operates upscale casual restaurants under the Kona Grill brand name. As of December 31, 2017, it owned and operated 46 restaurants in 23 states of the United States and Puerto Rico; and 3 franchised restaurants in Mexico, the United Arab Emirates, and Canada. The company is based in Scottsdale, Arizona.

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