Critical Contrast: Rocky Mountain Chocolate Factory (NASDAQ:RMCF) and Nathan’s Famous (NASDAQ:NATH)

Nathan’s Famous (NASDAQ:NATH) and Rocky Mountain Chocolate Factory (NASDAQ:RMCF) are both small-cap retail/wholesale companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, institutional ownership, earnings, risk, valuation, dividends and analyst recommendations.

Profitability

This table compares Nathan’s Famous and Rocky Mountain Chocolate Factory’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Nathan’s Famous	15.74%	-143.21%	42.41%
Rocky Mountain Chocolate Factory	-15.77%	-63.75%	-22.21%

Risk & Volatility

Nathan’s Famous has a beta of 0.38, suggesting that its share price is 62% less volatile than the S&P 500. Comparatively, Rocky Mountain Chocolate Factory has a beta of 1.12, suggesting that its share price is 12% more volatile than the S&P 500.

Insider and Institutional Ownership

66.5% of Nathan’s Famous shares are held by institutional investors. Comparatively, 50.3% of Rocky Mountain Chocolate Factory shares are held by institutional investors. 30.7% of Nathan’s Famous shares are held by company insiders. Comparatively, 42.2% of Rocky Mountain Chocolate Factory shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares Nathan’s Famous and Rocky Mountain Chocolate Factory”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Nathan’s Famous	$150.41 million	2.96	$24.03 million	$5.76	18.91
Rocky Mountain Chocolate Factory	$29.99 million	0.42	-$6.12 million	($0.61)	-2.67

Nathan’s Famous has higher revenue and earnings than Rocky Mountain Chocolate Factory. Rocky Mountain Chocolate Factory is trading at a lower price-to-earnings ratio than Nathan’s Famous, indicating that it is currently the more affordable of the two stocks.

Dividends

Nathan’s Famous pays an annual dividend of $2.00 per share and has a dividend yield of 1.8%. Rocky Mountain Chocolate Factory pays an annual dividend of $0.48 per share and has a dividend yield of 29.5%. Nathan’s Famous pays out 34.7% of its earnings in the form of a dividend. Rocky Mountain Chocolate Factory pays out -78.7% 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. Rocky Mountain Chocolate Factory is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Nathan’s Famous and Rocky Mountain Chocolate Factory, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Nathan’s Famous	0	0	1	0	3.00
Rocky Mountain Chocolate Factory	1	0	0	0	1.00

Summary

Nathan’s Famous beats Rocky Mountain Chocolate Factory on 10 of the 15 factors compared between the two stocks.

About Nathan’s Famous

Nathan’s Famous, Inc. engages in the operation of franchised fast-food units. It is involved in the licensing, wholesaling, and retailing of products marketed under the Nathan’s Famous brand. The firm operates through the following business segments: Branded Product Program, Product Licensing, Restaurant Operations, and Corporate. The Branded Product Program segment markets and sells hot dog products. The Product Licensing segment is composed of royalties from licensing a variety of Nathan’s Famous products such as hotdogs, sausage and corned beef products, frozen French fries, and additional products through retail grocery channels and club stores. The Restaurant Operations segment deals with the sale of products at company-owned restaurants and fees and royalties from franchised restaurants. The Corporate segment includes administrative expenses such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation, and compliance costs. The company was founded by Nathan Handwerker in 1916 and is headquartered in Jericho, NY.

About Rocky Mountain Chocolate Factory

Rocky Mountain Chocolate Factory, Inc., together with its subsidiaries, operates as a confectionery franchisor, manufacturer, and retail operator. It operates through Franchising, Manufacturing, Retail Stores, and Other segments. The company produces approximately 400 chocolate candies and other confectionery products, including clusters, caramels, creams, toffees, mints, and truffles; and offers 15 varieties of caramel apples and other products that are prepared in individual stores, as well as provides ice cream, coffee, and other sundries. Rocky Mountain Chocolate Factory, Inc. was founded in 1981 and is headquartered in Durango, Colorado.