Rick’s Revisited, Still Growth & Value Alike (RICK)

Rick’s Cabaret International Inc. (NASDAQ: RICK) may not be one of the most controversial companies out there, but it is definitely one of the stranger stocks out there because of the fact that it is the largest public "gentleman clubs" out there.  The company has also grown by acquisitions and the company plans to keep making acquisitions.  What is interesting if you look at the company’s guidance and do not consider the industry it is in, it is hard to argue against the value of the company from a growth investor mind and from a value investor mind.  That’s GARP for you.

The company posted earnings yesterday and gave its guidance, which it also gave in a second press release today.  For its 2008 fiscal year (Sept-2008 end) the company said it expects approximately $61 to $62 million in revenues.  That would put after tax net income around $10.5 to $11 million, which would yield about $1.25 to $1.30 EPS.  Its outlook for fiscal Sept-2009 puts revenues exceeding $100 million, and yields a an earnings range of $2.30 to $2.50 EPS.

While the company has very thin analyst coverage, these numbers are well above the two estimates measured by First Call.  Fiscal Sept-2008 estimates are $1.17 EPS and about $58 million (top estimate is $1.21 EPS).  Fiscal Sept-2009 estimates are $1.88 EPS and almost $79.7 million. 

The company did also note different numbers for the calendar years as well, although we wanted to compare the numbers above on an apples to apples basis.  These 2008 numbers don’t reflect a pending acquisition, but the 2009 numbers do.  Between now and then, we won’t be surprised if the company has made more acquisitions.

Rick’s shares have more than doubled over the last year, and its market cap is now approximately $158 million based upon a $21.00 stock price.  As far as forward valuations, for 2008 it has a forward P/E ratio at the Low-end of estimates at 16.8 and trades at roughly 2.5-times revenues.  For Fiscal Sept-2009, its forward numbers at its own low-end of estimates are a 9.1 forward P/E ratio and roughly 1.5-times revenues.

We covered this when its market cap had just crossed over $100 million, and you can see how these new projections are ahead of those numbers.

There is no doubt that many cannot own this stock because it falls in the "sin stock" category.  But for those who can and if you can trust the company’s numbers, then all of a sudden you have a low-multiple growth stock with the potential for close to 90% earnings per share growth.  Now that the market cap is north of $100 million, there are also many more funds that are not barred from owning it because many have a $100 million market cap minimum.  As long as you are comfortable with the company’s projections and as long as you don’t mind owning a sin stock, the projections look and sound great.

A college logic class might even deduce that topless bars are nearly recession proof. 

Jon C. Ogg
May 9, 2008

Jon Ogg is also a producer and editor of the "10 Stocks Under $10" weekly newsletter; he does not own securities in the companies he covers.