Meritage Hospitality Group (OTCMKTS:MHGU) & Potbelly (NASDAQ:PBPB) Critical Analysis

Meritage Hospitality Group (OTCMKTS:MHGU) and Potbelly (NASDAQ:PBPB) 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 analyst recommendations, institutional ownership, profitability, valuation, dividends, earnings and risk.

Profitability

This table compares Meritage Hospitality Group and Potbelly’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Meritage Hospitality Group	-0.10%	-0.54%	-0.08%
Potbelly	2.30%	16.31%	3.56%

Risk and Volatility

Meritage Hospitality Group has a beta of -0.08, suggesting that its stock price is 108% less volatile than the S&P 500. Comparatively, Potbelly has a beta of 1.52, suggesting that its stock price is 52% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for Meritage Hospitality Group and Potbelly, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Meritage Hospitality Group	0	0	0	0	0.00
Potbelly	0	5	0	0	2.00

Potbelly has a consensus target price of $17.41, suggesting a potential upside of 1.83%. Given Potbelly’s stronger consensus rating and higher probable upside, analysts plainly believe Potbelly is more favorable than Meritage Hospitality Group.

Earnings & Valuation

This table compares Meritage Hospitality Group and Potbelly”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Meritage Hospitality Group	$668.80 million	0.10	$7.80 million	($0.51)	-18.82
Potbelly	$462.60 million	1.12	$40.29 million	$0.35	48.86

Potbelly has lower revenue, but higher earnings than Meritage Hospitality Group. Meritage Hospitality Group is trading at a lower price-to-earnings ratio than Potbelly, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

72.6% of Potbelly shares are held by institutional investors. 67.8% of Meritage Hospitality Group shares are held by insiders. Comparatively, 10.2% of Potbelly 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.

Summary

Potbelly beats Meritage Hospitality Group on 11 of the 13 factors compared between the two stocks.

About Meritage Hospitality Group

Meritage Hospitality Group Inc. operates quick-service and casual dining restaurants. The company operates restaurants under the Wendy's, Morning Belle, and Stan's Tacos, as well as Taco John's brand names in Arkansas, Connecticut, Florida, Georgia, Indiana, Massachusetts, Michigan, Missouri, Mississippi, North Carolina, South Carolina, Ohio, Oklahoma, Tennessee, Texas, and Virginia. It is also involved in franchising activities. The company was formerly known as Thomas Edison Inns, Inc. and changed its name to Meritage Hospitality Group Inc. in May 1996. Meritage Hospitality Group Inc. was incorporated in 1986 and is based in Grand Rapids, Michigan.

About Potbelly

Potbelly Corporation, through its subsidiaries, owns, operates, and franchises Potbelly sandwich shops in the United States. The company was formerly known as Potbelly Sandwich Works, Inc. and changed its name to Potbelly Corporation in 2002. Potbelly Corporation was founded in 1977 and is headquartered in Chicago, Illinois.