Financial Review: BAB (OTCMKTS:BABB) and Arcos Dorados (NYSE:ARCO)

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Arcos Dorados	3.25%	29.74%	4.99%
BAB	15.28%	16.96%	11.71%

Analyst Ratings

This is a breakdown of current ratings for Arcos Dorados and BAB, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arcos Dorados	0	0	1	0	3.00
BAB	0	0	0	0	0.00

Arcos Dorados presently has a consensus price target of $12.00, indicating a potential upside of 60.97%. Given Arcos Dorados’ stronger consensus rating and higher possible upside, equities research analysts clearly believe Arcos Dorados is more favorable than BAB.

Dividends

Arcos Dorados pays an annual dividend of $0.24 per share and has a dividend yield of 3.2%. BAB pays an annual dividend of $0.04 per share and has a dividend yield of 4.7%. Arcos Dorados pays out 34.3% of its earnings in the form of a dividend. BAB pays out 57.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Insider & Institutional Ownership

55.9% of Arcos Dorados shares are owned by institutional investors. 33.7% of BAB shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Volatility and Risk

Arcos Dorados has a beta of 1.13, indicating that its stock price is 13% more volatile than the S&P 500. Comparatively, BAB has a beta of 0.02, indicating that its stock price is 98% less volatile than the S&P 500.

Earnings & Valuation

This table compares Arcos Dorados and BAB”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arcos Dorados	$4.50 billion	0.35	$181.27 million	$0.70	10.65
BAB	$3.51 million	1.78	$470,000.00	$0.07	12.29

Arcos Dorados has higher revenue and earnings than BAB. Arcos Dorados is trading at a lower price-to-earnings ratio than BAB, indicating that it is currently the more affordable of the two stocks.

Summary

Arcos Dorados beats BAB on 10 of the 16 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, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela. The company was founded in 2007 and is based in Montevideo, Uruguay.

About BAB

BAB, Inc. franchises and licenses bagel and muffin retail units under the Big Apple Bagels (BAB), My Favorite Muffin (MFM), and SweetDuet (SD) trade names in the United States. It's BAB franchised brand includes daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches, and other related products; and MFM brand comprises various freshly baked muffins and coffees, as well as units operating as My Favorite Muffin Your All Day Bakery Café features specialty bagel sandwiches and related products. The company's SD brand includes frozen yogurt products. BAB, Inc. was founded in 1993 and is based in Deerfield, Illinois.