Critical Analysis: Starbucks (NASDAQ:SBUX) and FAT Brands (NASDAQ:FAT)

FAT Brands (NASDAQ:FAT) and Starbucks (NASDAQ:SBUX) are both retail/wholesale companies, but which is the better investment? We will compare the two companies based on the strength of their institutional ownership, valuation, risk, profitability, dividends, earnings and analyst recommendations.

Insider and Institutional Ownership

6.9% of FAT Brands shares are held by institutional investors. Comparatively, 72.3% of Starbucks shares are held by institutional investors. 15.7% of FAT Brands shares are held by insiders. Comparatively, 0.0% of Starbucks shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Ratings

This is a summary of recent recommendations and price targets for FAT Brands and Starbucks, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
FAT Brands	1	2	1	0	2.00
Starbucks	2	11	17	0	2.50

FAT Brands currently has a consensus price target of $10.00, suggesting a potential upside of 6,050.06%. Starbucks has a consensus price target of $104.22, suggesting a potential upside of 5.12%. Given FAT Brands’ higher possible upside, equities analysts plainly believe FAT Brands is more favorable than Starbucks.

Dividends

FAT Brands pays an annual dividend of $0.14 per share and has a dividend yield of 86.1%. Starbucks pays an annual dividend of $2.48 per share and has a dividend yield of 2.5%. FAT Brands pays out -1.0% of its earnings in the form of a dividend. Starbucks pays out 205.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Starbucks has raised its dividend for 15 consecutive years. FAT Brands is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk & Volatility

FAT Brands has a beta of 1.34, indicating that its stock price is 34% more volatile than the S&P 500. Comparatively, Starbucks has a beta of 0.93, indicating that its stock price is 7% less volatile than the S&P 500.

Valuation and Earnings

This table compares FAT Brands and Starbucks”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
FAT Brands	$574.14 million	0.01	-$189.85 million	($13.35)	-0.01
Starbucks	$37.18 billion	3.04	$1.86 billion	$1.21	81.94

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

Profitability

This table compares FAT Brands and Starbucks’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
FAT Brands	-39.33%	N/A	-17.99%
Starbucks	3.63%	-28.66%	7.03%

Summary

Starbucks beats FAT Brands on 11 of the 17 factors compared between the two stocks.

About FAT Brands

FAT Brands Inc., a multi-brand restaurant franchising company, acquires, develops, markets, and manages quick service, fast casual, casual dining, and polished casual dining restaurant concepts worldwide. It owns restaurant brands, including Round Table Pizza, Marble Slab Creamery, Great American Cookies, Hot Dog on a Stick, Pretzelmaker, Fazoli's, Fatburger, Johnny Rockets, Elevation Burger, Yalla Mediterranean, Buffalo's Cafe and Buffalo's Express, Hurricane Grill & Wings, Ponderosa Steakhouse/Bonanza Steakhouse, Native Grill & Wings, Smokey Bones, and Twin Peaks. The company was incorporated in 2017 and is headquartered in Beverly Hills, California. FAT Brands Inc. is a subsidiary of Fog Cutter Holdings, LLC.

About Starbucks

Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of coffee worldwide. The company operates through three segments: North America, International, and Channel Development. Its stores offer coffee and tea beverages, roasted whole beans and ground coffees, single serve products, and ready-to-drink beverages; and various food products, such as pastries, breakfast sandwiches, and lunch items. The company also licenses its trademarks through licensed stores, and grocery and foodservice accounts. The company offers its products under the Starbucks Coffee, Teavana, Seattle’s Best Coffee, Ethos, Starbucks Reserve, and Princi brands. Starbucks Corporation was founded in 1971 and is based in Seattle, Washington.