BOSTON ( TheStreet) -- The Russell 2000 Index, a benchmark for small-company stocks, has gained 10% this year, double that of the technology-focused Nasdaq and triple the Dow Jones Industrial Average.The small-cap space suffered a pronounced, but little publicized, sustained decline during the fall. If the economy continues to improve faster than expected, riskier small-caps are likely to outperform. One subset that has recently gone on parade is the hotels, restaurant and leisure industry. Here's a snapshot of two small-cap restaurant winners of 2010 that have trounced indices, but still offer significant value. Denny's Denny's ( DENN) stock has soared 50% in 2010. The owner of family-style restaurants, home of the Grand Slam breakfast, swung to a fourth-quarter profit of $18 million, or 18 cents a share, from a loss of $3.2 million, or 3 cents, a year earlier. Revenue decreased 24% to $140 million. Still, the operating margin widened from 7.6% to 11%. Denny's holds $27 million of cash and $279 million of debt. It's running a shareholders' deficit, which decreased by 27% to $128 million in the latest period. Denny's stock trades at a price-to-earnings ratio of 8 and a price-to-projected-earnings ratio of 8.9, reflecting 87% and 68% discounts to its peer-group average. The shares are also cheap based on sales. Denny's PEG ratio, a measure of value relative to expected growth, of 0.1 represents a 98% discount to the industry average. A PEG ratio below 1 signifies a bargain. During the past three years, Denny's has increased net income 11% annually, on average. The company has a market value of $316 million, so it hasn't attracted a Wall Street following. Of the analysts covering Denny's, three advise purchasing its shares and one recommends holding them. Roth Capital Partners expects the stock to hit $5, implying there's still 52% of upside. CL King & Associates projects that it will advance 22% to $4. TheStreet's stock model is more cautious, rating Denny's "hold." Domino's Pizza Domino's Pizza ( DPZ) has soared 70% in 2010. The pizza-delivery company and franchiser revamped its brand and recipes in 2009. Fourth-quarter profit more than doubled to $24 million, or 41 cents, as revenue climbed 8.1% to $463 million. The operating margin expanded from 12% to 14%. Like Denny's, Domino's is running a shareholders' deficit, which continues to fall. The company holds $134 million of cash and $1.6 billion of debt.
Its stock sells for a price-to-earnings ratio of 10 and a price-to-projected-earnings ratio of 12, indicating an 83% and 58% discount to the industry average. The shares are also inexpensive when comparing sales and cash flow. Quarterly return on assets, a gauge of profitability, expanded from 12% to 18%, an encouraging sign to potential investors. Domino's now boasts a quick ratio, a liquidity measure, of 1 and has lowered debt by 2% from a year earlier. The company has a market value of $834 million, but a sizable sell-side following. Of the 12 analysts covering Domino's, half advocate purchasing its shares and half suggest holding them. Sidoti & Co. offers the loftiest price target, predicting the stock will gain 48% to $21. Citigroup expects it to advance to $18.50, leaving a 30% return on the table. TheStreet's stock model, which is more conservative than most research tools, rates Domino's "hold." -- Reported by Jake Lynch in Boston.