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WIKI ANALYSIS
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What They Do
Rick's Cabaret International, Inc. operates upscale gentlemen's clubs, nightclubs, bars and restaurants in the U.S. and has a licensing program in Latin America.[1]
Founded in 1983, the company pioneered the creation of elegant gentlemen's clubs featuring topless dancers and high quality restaurant service.
The company went public in 1995 and since that time has built powerful brand name awareness for its upscale environment and enjoyable adult entertainment. Many performers from Rick's have become Penthouse Pets and Playboy Playmates.
Anna Nicole Smith, met her oil billionaire husband while dancing at Rick's Cabaret in Houston.
The principal business lines of Rick’ Cabaret are nightclub entertainment and the principal brands are Rick's Cabaret (high-end clubs in New York City, Philadelphia, Minneapolis, Houston, San Antonio, Ft. Worth, Austin); Club Onyx (upscale nightclubs in Houston and Charlotte catering to African-American gentlemen); XTC Cabaret (non-alcohol clubs in several Texas cities); and Tootsie's Cabaret (popular Miami adult nightclub).
Licensed clubs are now open in Buenos Aries and the company also owns an upscale club in Dallas. The company has also signed letters of intent to buy other clubs, as well as to license a Rick's Cabaret in New Orleans.
The company also has internet activities and under the flagship www.NaughtyBids.com and the company owns and operates adult auction sites. Rick's also owns www.CouplesTouch.com an adult entertainment subscription website serving people in the "swingers" lifestyle.
The company's media division purchased ED Publications, Inc. in April 2008, the leading trade magazine serving the multi-billion dollar adult nightclubs industry. In addition, the company owns three industry trade publications, two industry trade shows, and more than 25 industry-related websites.
Short-Term Investment
The stock entered an upward trend in the middle of December 2009 and now appears to be overbought. Coupling the overbought condition of the stock with first resistance at $12.33 and first support at $8.04, and given a recent close of $11.54, it simply doesn't seem to make much short-term investing sense to have the stock in a portfolio at this time.
Long-Term (5 Year Hold) Investment
The company's basic metrics, the current ratio, the quick ratio, and the cash ratio, are close to what is considered investment quality, especially with cash flow at better than $2.10 per share. However, the company's debt at more than 50% of gross revenue is much too high.
The company's acquisition costs for fiscal 2009 were only 7% of its acquisition cost for fiscal 2008, yet debt was reduced year over year by less than 15%.[2]
Despite a year over year increase in sales of more than 25%[2], it doesn't seem that prior acquisitions have been immediately accretive to earnings. And as the US economy continues to struggle, it doesn't seem that net income will increase for the company during fiscal 2010.
A 5 year hold Reasonable Value estimate for the company based on year end fiscal 2009 data is $26-$28.[3] Note that approximately 60% of the financial metrics used in this analysis would be considered investment quality.
In addition, there's the potential for at least a 25% reduction in the Reasonable Value estimate as fiscal 2010 unfolds, since management could continue its laissez-faire attitude toward debt reduction.
Additional Information
References
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