Should You Hold RCI Hospitality (RICK)?
Investment management company Bireme Capital recently released its fourth-quarter 2023 investor letter. A copy of the same can be downloaded here. In 2023, the fund returned 21.3% net of fees underperforming the S&P 500’s 26.2%. The fund was up 448% net since inception in 2016 vs the S&P at 161%, an annual outperformance of 11.7%. Last year was the second calendar year in a row that the fund underperformed the S&P 500, and the first since 2019. Nonetheless, the firm is particularly proud of last year’s returns because 2023 was an extraordinarily tough year for the relative performance of active value managers. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Bireme Capital featured stocks such as RCI Hospitality Holdings, Inc. (NASDAQ:RICK) in the fourth quarter 2023 investor letter. Headquartered in Houston, Texas, RCI Hospitality Holdings, Inc. (NASDAQ:RICK) owns and operates clubs and restaurants. On February 6, 2024, RCI Hospitality Holdings, Inc. (NASDAQ:RICK) stock closed at $61.28 per share. One-month return of RCI Hospitality Holdings, Inc. (NASDAQ:RICK) was -2.39%, and its shares lost 31.86% of their value over the last 52 weeks. RCI Hospitality Holdings, Inc. (NASDAQ:RICK) has a market capitalization of $573.561 million.
Bireme Capital stated the following regarding RCI Hospitality Holdings, Inc. (NASDAQ:RICK) in its fourth quarter 2023 investor letter:
"Our worst performing position was RCI Hospitality Holdings, Inc. (NASDAQ:RICK), which declined more than 20% into the stock’s lows over the summer before rebounding in the fall. RCI is a nightclub and restaurant operator with over 60 locations across the US. The business has now gone through two consecutive quarters of SSS declines in the nightclub segment, with FQ3 down 7.3% and FQ4, ended in September, down 9.6%. Despite these declines, RCI’s revenue per store is still above 2019 (i.e., pre-COVID) levels and on a much-expanded number of locations. So while the firm seems to have given back most of the SSS gains from the post-COVID “experience spend” boom, we don’t think this portends a long-term decline in sales per location.
At its current market cap of around $580m, RICK trades for 9x EBITDA and less than 12x maintenance free cash flow. We still think this is too cheap. Since 2019, RICK has grown their nightclubs, primarily through acquisition, from 37 to 55. This increase in locations has driven revenue from $166m to $290m and EBITDA from $44m to $90m. Net income has also doubled from $20m to over $40m. Over the same period, shares outstanding have fallen from 9.7m to 9.4m due to occasional buybacks. RICK remains one of the only ways for small operators to sell their clubs, allowing RICK to acquire these assets on the cheap and improve earnings by professionalizing management practices. We remain long."
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RCI Hospitality Holdings, Inc. (NASDAQ:RICK) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held RCI Hospitality Holdings, Inc. (NASDAQ:RICK)at the end of third quarter which was 14 in the previous quarter.
We discussed RCI Hospitality Holdings, Inc. (NASDAQ:RICK) in another article and shared Ace River Capital’s views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
