Rick's... Now a $100+ Million Empire (RICK)

It isn’t every day that stock analysts and reporters get to cover a publicly traded topless bar chain.  But all issues aside and assuming today’s rally holds this stock will start showing up on many popular stock screenings that traders use to identify new stocks.  Shares of Rick’s Cabaret International, Inc. (NASDAQ:RICK) are trading up over 5% today on the company’s forward guidance for fiscal 2008 and 2009, and its fiscal years end on September 30 of each year. 

The company has now crossed the $100 million market cap stock as well to a level of roughly $108 million.  The assumptions (below) seem reasonable if you aren’t using an exacttarget on a month to month basis, and the valuations here with a 35% ormore earnings growth and low forward P/E ratios actually make Rick’sseem appropriate for growth investors and value investors alike.  The only issueat hand besides the near-micro-cap market capitalization is that theunderlying industry will keep some investors away or reserved becauseit falls under the "sin stock" status.  Here is forward guidance offered:

• For fiscal 2008, the company sees sales of $52 million, and after tax net income of about $7 million or about $0.95 EPS.  For calendar 2008 it is aiming for $58 million in revenues and net income of about $9 million or $1.25 per share.
• For fiscal 2009, the company sees sales of approximately $75 million, with net income of about $13 million or about $1.70 EPS.

Valuations assumptions are using today’s values even after the gain to $17.60.

• For Fiscal 2008 (Sept.), Rick’s has a forward P/E ratio of 18.5 and trades at roughly 2.07 times revenues. 
• For Calendar 2008, Rick’s has a forward P/E ratio of 13.3 and trades at roughly 1.86 times revenues. 
• For Fiscal 2009 (Sept.), Rick’s has a forward P/E ratio of 10.35 and trades at roughly 1.44 times revenues.

The assumptions don’t seem unrealistic if you look back over the acquisition and growth history of the company:

• These figures include two recent acquisitions and assume a target of 6% on same-store-sales growth. 
• The projections anticipate issuance of 225,000 new shares of common stock for the Philadelphia transaction and up to 1.2 million shares, plus the assumption of $10 million in debt in connection with financing other acquisitions.
• These projections assume the acquisition of one additional club in 2008; and further assume completing two acquisitions in early 2009.
• The 2009 outlook assumes issuing an additional 400,000 shares of common stock in connection with acquisitions.

While shares are not on an intraday high, these levels above $17.60 would mark a high close for the stock.  Its 52-week trading range before today is $5.02 to $16.76 and the company had 180,441 shares listed as its last short interest count, or about a days to cover ratio of 1.4.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.