I have previously considered Rick's Cabaret as a potential addition to my portfolio, but I will not touch it.
Even now, it:
(1) is trading at about 1/3 of its 5 year high;
(2) has basically no real equity value once you back out goodwill;
(3) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills;
(4) continues to pile on long-term debt period over period;
(5) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.); and
(6) despite all of these challenges and issues, trades at an absurd 30x EPS.
This stock might be nice as a novelty holding, I wouldn't want to stake any of my retirement on it.
It traded at twice its average volume 2 days ago and closed at lower than where it sits now. And even were that not the case, some would contend that every piece of trade data is important with a thinly traded micro-cap stock.
Dude if it's trading $64,000 a day with that "market cap" people ain't touching it for a reason (I.e. it's almost as big a fraud as you are.) the thinner the volume in a stock becomes the more meaningless the price becomes. That's like investing 101, RickyGirl.
You really are a dipshit in multiple venues - lol. You cannot look at one day as a standalone and contend that the price it traded at on that day is not indicative of where the market perceives the stock's value to be simply because trading was light.
Two days ago, almost 1% of its market cap turned over at close to the price it sits at now. Two weeks ago, there were 2 days in a row where well over 1% of its market cap changed hands at approx. $9 per share.
Your investing 101 insights are about as credible as your club reviews. You might want to stick with something that you understand better from first hand experience, such as psychiatric disorders. ;)
Please Rick. The average volume times price is about $250,000. That is not even a net flow in or out. But total average volume times price. Who knows how many if those are just the market maker shifting around their own inventory to paint a pretty little pattern on the tape. Assuming anyone besides the market maker is even trading it at all. As I say if that all the trading volume they can generates its for a reason - they are as fraudulent as you. And if you don't believe liquidity is important consideration explain why stocks have much bigger swings and act less in accord with their usual price in low volume periods like after hours or pre-market.
Look at the moves on high volume not low if you want the real story. If there is no high volume like in this stock then it's a setup. In this case I would say setup for the downside too. If they can get it under $5 or $3 in the future higher margin requirements will kick then you'll see some real volume. On the other hand you can't short it either becaus it's so ease to make a fake move up if it's only trading $250,000 day.
Yep you say volume is meaningless but that you know what you are talking about. Hilarious. It!s the Nasdaq Rick you better look at some absolute numbers and not get fooled by percentages. Also look what happening on those high volume days (should be in quotes), eg biggest down for the Dow this year on high volume of course even a fraud stick like this would be affected.
I think you could make a lot of money from a strip club, but not from being a passive investor, because those controlling the club would rob you blind. You would need to own and operate the club yourself. You would need to treat the dancers like a pimp treats his whores. You would need to pay off the local politicians and cops. And you would need to stand up to criminals who would try to muscle in on your business. I'm too old, I think, to become the leading character of a strip club "Breaking Bad."
Ok, back at my PC, so can look at RICK in some more detail. (Was on my iPhone earlier).
First BS thing from RickyBoy's "analysis" I notice is:
RickyBoyDugan: "(6) despite all of these challenges and issues, trades at an absurd 30x EPS"
WTF? Did RickyBoy pull that number of his ass or can't he do basic arithmetic? Google, and Yahoo as well my broker all say PE is 10.20. Look it up, RickyBoy!
Now if this stock wasn't outright fraudulent (as the Rickster is - proof saying PE is 3x as high as it actually is 10) then a PE of 10 is quite reasonable.
Also quarterly earnings growth (YoY) is about 23%. Again, if the company wasn't obviously outright fraudlent, and you could anticipate that growth could continue, a PE around the growth percentage, i.e. 23 would be reasonable.
Now RickyBoy is sort of right about the debt situation being not so good. (* for the third time all of this hypothetical analysis is assuming their books can even be believed which I doubt...) But's it as bad as RickyBoy claims.
They claim $80 million in real estate, about $7 million in cash (very light, which is probably why they have all that debt). Goodwill and other intangibles are about $100 million. Debt is about $100 million. So when you back out good will and other intangibles debt/equity around 1. Not great but not a complete disaster either.
If you could somehow argue that RICK was a potential growth stock, their debt situation won't be too great a concern - might even be needed/attractive for growth if they had good plans on how to spend it to expand (companies like SIRI have comeback from worse debt situations than that).
But are there really still growth opportunities in the strip club space that has been around this long? What does RICK have to offer in this space that is new? Or, otherwise, what is new in the strip club space?
Answer: nothing. If anything I see more crackdowns on "human trafficking" allegations.
In any case, analysis of a most likely fictious balance sheet is a bit amusing (just to show how far off the RickyBoy was with his "analysis"), but like I say when a stock with supposed market cap of $80 million can only generate $60,000 in a day of trading on the NASDAQ you got to be worried without even bothering to look at anything else.
How are you going to move any money into it, or get it out before the house of cards fall? Haven't look at the typical spreads, but with $250,000 average total (not net in or out) a day, you got imagine you are going to get zinged even on that.
RickyBoy: "some would contend that every piece of trade data is important with a thinly traded micro-cap stock."
No what happens in micro-traded markets is more likely to be non-sense. Maybe the market maker was just bored so did a naked short of 100 shares and then bought them back every 15 minutes, just to amuse himself and pretend there wasn't 0 volume. He would be putting way less than $800 at risk each time, so hardly a stretch. Doing just that would practically account for all the volume right there.
You really ought to double check your facts and learn the backs before you flap your big trap, RickyBoy. You might be willing to bluff some (PE of 30 when it is actually 10), but I'll fact check your ass and call you down, bitch!
Yep, RickyBoy rarely let's actual facts influence the way he views the world. Just says what he wants and hopes no one will double check him.
Let's break it down point for point:
" (1) is trading at about 1/3 of its 5 year high;"
Ok, true, and some people only like to buy break out stocks, but you can still find good values that are well off their 5 year highs. Take BAC for example. So this fact is meaningful, and Rick got it right, but not a KO in isolation. Well give him a check on that one.
" (2) has basically no real equity value once you back out goodwill;"
This one is completely wrong. They have value in real estate and a bit of cash, and other tangible assets working out to around $100 million.
" (3) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills;"
Current liabilities are about equal to current assets if you exclude goodwill and intangibles. Say "far in excess" is a stretch. Right now earnings are positive, and it looks like they are taking on debt for expansions. In theory the plan would be increase earnings and use the proceeds to pay down debt over time. Give RickyBoy a strike on this one.
" (4) continues to pile on long-term debt period over period;"
Long term debt was flat around $30-35 billion of a few years and then jumped last year. Presumably taking on debt to expand. Saying "period over period" is definitely false. Give RickyBoy a strike on that point.
" (5) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.); "
I actually think Ricky got this one right. We'll give him full points on that one.
" (6) despite all of these challenges and issues, trades at an absurd 30x EPS."
Again factually incorrect. Not sure how Rick bungled that one. He probably had already decided the stock was a no buy at this point, and 30x EPS fit into his confirmation bias, so he didn't bother to check. Or maybe he can't do basic arithmetic. Again, though, if it was a more consistent growth story, 30 EPS might actually be a sign of strength. (Say they had consistent quarterly and annual earnings growth around 30%). So Rick complete strikes out on that one.
Final score:
1) True and relevant enough to give him the point (1)
2) Factually incorrect (0)
3) Factually incorrect (0)
4) Factually incorrect (0)
5) Full points on this one (1)
6) Factually incorrect, and even if true not necessarily relevant (0)
So final grade for Ricky's analysis 2/6=33%. A big fat, F!
Dougie. mea culpa on the multiple - I was moving too fast and erroneously used the quarterly earnings number in my denominator rather than the annual number. I'll take the hit when it is earned, because that is what a man does. ;)
As far as most of the rest of that is concerned, of course the situation is not good and thanks for essentially rehashing the following:
It...
(1) has basically no real equity value once you back out goodwill;
(2) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills;
(3) continues to pile on long-term debt period over period; and
(4) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.).
And to give no credence at all to market trading as an indicator of perceived value is ludicrous. The reason that the volume is so low is because the company is so small. First off, no institutional investor could take a big enough position in the company for it to matter without triggering Section 13/16 filings and other potential reporting issues and restrictions. Second, trying to purchase even 100,000 shares would probably lead to substantial volatility (read price spike) given that it only trades 30k per day on average, so even taking a $1mm position would be difficult. Third, the stock would be considered illiquid by many investors, including pooled vehicles, as any large stake would be extremely hard to exit without taking a beating on the way out or working the sale over several weeks.
Net-net, it is simply not a desirable spot to play in for most large investors, but that does not mean that the marketplace is not a reasonable gauge for its current trading value. The market never lies dude, we just don't understand her sometimes. ;)
I'm going to have to concede a point to you Rick. It looks like close to zero trading volume is pretty standard for stocks with market cap in that neighborhood. So you are right, the volume, by itself does not indicate that they are fraudulent.
Still I would never trade it, because the spreads are probably fantastic. Even moving in a modest $50,000 to $100,000 would be enough to move the stock up too. If you actually could get in at a decent price good luck getting out quickly at a decent price if you needed to.
You are also correct that it is too lightweight for institutions moving into it, so you probably just get some occasional retail trading on thin volume, making price moves and current price less meaningful than for stocks with decent caps.
Is that current price fair if everything on their balance sheet is accurate? It's actually not bad if they can maintain earnings. If they can grow, it's undervalued. Given the kind of people we know to be involved in strip club management (lying thieving whores in suits!) would I trust that they weren't up to accounting tricks? Hardly.
Also, even it was guaranteed the accounting was legit I still won't touch it due to difficult getting money in and out quick and the fact that the spreads are probably fantastic.
I want decent cap stocks (min $1 B, preferably >$10B) where you can sell a couple of hundred thousand and the market gobbles it up in a few second. Something like AAPL is even better. Sell a few hundred thousand and you don't even move the needle.
I will say after looking at it in some more detail,
1) if their accounting is legit,
2) if they show evidence their growth strategy is working,
3) someone is willing to move money in slowly (or gets lucky and find a seller for a "large" bid),
4) same person can ride out the volatility
5) same person is willing to get out slowly
then maybe it is investable. A few too many "what if"s for my liking though.
RickyBoy: "but you are fucking up the analysis of the balance sheet kiddo. ;)"
Looks like you are the ones who made a few goofs there. (I explained specifically where above. People can download the balance sheet and see for themselves.)
Ricky was probably just looking at quarterly data over the last year. In that case real estate holdings which is a major part of their assets isn't listed. It only shows up if you switch to the annual view. Yeah, if you mistakenly miss their real estate holding it looks like they have virtually no assets.
Similarly, debt did go up quarter by quarter last year ("period by period". If you look at the annual data though, that's an anomaly. Again, I would put my money they were acquiring new properties - either building them up from scratch or buying them from others. Notice debt increase by amount the real estate does - hence my guess.
So, yeah, Ricky's big goof seems to have been not to include the value of their properties in his "analysis". Now that I've pointed this out to him let's see if he is "man" enough (as he puts it above) to admit this, or just going to stick to "I am right; you are wrong; but I'm not going to explain why or get into facts".
Now back to the stock:
Revenue is actually increasing nicely, if they could get expenses under control. Also I'm not sure it is fair to completely drop "good will" and "other intangibles" from assets. The name is worth. Having strippers other employees in their network ready to go to work for them is worth something. Customer loyalty... Is the value of that what they say? Who knows... If the stock wasn't so lightweight might be worth looking at.
Analyzing trading volume is relative. RICK trades average volume relative to total shares outstanding at a ratio approx 80% of what GE does.
The big difference as Rick points out is that RICK has little institutional support. RICK is probably influenced more by insiders than anything else. Many people may own it just for shits and giggles.
I would like to see Rick comment on the big parts of his analysis he got wrong:
- Failed to account for real estate in his analysis of liabilities versus assets
- Only looked at debt growth over the last four quarters versus the last few years, and, even then, because he forgot real estate did not consider what that debt might have been used for
Remember your own words Rick, "I'll take the hit when it is earned, because that is what a man does. ;)". Let's see if you are a man here, or not! ;-)
As for volume per day relative to shares outstanding. Let's compare using "Key Statistics" from Yahoo! finance:
So comparing to GE seems like a bit of cherry pick. Also GE is an NYSE stock not NASDAQ, so further clouds the analogy.
I would say the reason for the low relative volume is not only lack of institutions, but it's not a got a trading vehicle even for day traders. Even moving in $50,000 $100,000 would make something with average volume of $250,000 a day jump.
If someone did want to buy RICK, doing it with a limit order would be best. Might take a while to fill, but you might get lucky and someone happened to have some shares they wanted to offload. (And, got to admit now, that yearly revenue growth does seem mighty attractive...)
Most are piddly little deal for $10-20k, but somewhat larger ones around $100k appear to be sales. Would have to how much stock these guys are getting for comp to know if it's significant or not, but on the surface insider activity appears negative.
[ personally come from a long line of investors who buy high and sell low so I stay away from the market and let others who know more deal with my meager portfolio.
About 20 years ago I went to a nephews afternoon soccer game. All the soccer moms were there and one man. We got talking and he was the owner of two strip clubs. One of them has become my favorite and it appears to be very well run. Management is stable, there's a cop at the front door (getting time and a half) who keeps an eye on the parking lot and the other one closed. More than 1/2 the girls offer extras in VIP and no one seems to get their panties twisted. Drinks are average in cost, and the waitresses don't push drinks. Rub girls are $10 per song and LD's are $20 per song. VIP is by the hour only with $170 to the house and $200 to the girl (+extras). Dancers tip the DJ, the house mom, the makeup artist, and the bouncers, but usually only $5 each days and $10 nights. The owner makes a fortune. The license is worth at least a quarter million and overhead is predictable and reasonable. He owns the building and the attached restaurant and frequently upgraded and kept very good looking and safe. Most dancers are 7 - 10's and enjoy working there (compared to other clubs where they've worked. For all of these reasons it is a money-maker. Most clubs are not run this way and instead have owners/managers who are trying to get a fast buck. Dancers are employees and are payed a paltry amount and management doesn't keep track of their lap dances, just VIP. The waitresses handle the VIP rooms, take the dancers off the stage rotation when they're otherwise occupied and gently knock on the entry way when there's 5 minutes left. I've heard stories of waitresses getting in on the action in VIP but have never experienced that.
My point is that properly run and managed these clubs can be a gold mine. There are other factors (location, location, and location), clientele, etc. but these too, can be managed.
Dougie, just to be clear about 2-4, which you said you would be addressing, I thought that I would help you along. I'd be happy to point out where to find this stuff in the balance sheets if you need any assistance.
(2) has basically no real equity value once you back out goodwill...
When you back goodwill out of stockholders equity, you actually have a negative number. And property is already included on the balance sheet, and at rosy valuations to boot given that it is carried at cost when many of those properties were purchased during the boom times.
CHECK
(3) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills...
Current assets - minus current liabilities = almost -$10mm. This means that they will need to either have an historically incredible month (unlikely) in order to cover their current bills PLUS pay ongoing expenses that cannot be deferred (namely salaries and COGS) or they will have to either sell something or add on yet more debt.
The numbers are what they are. If one must pay more tomorrow than one can collect by tomorrow, then one must find the extra cash somewhere.
CHECK.
(4) continues to pile on long-term debt period over period;
December 31, 2012: $64,090,000
September 30, 2012: $56,925,000
September 30, 2011: $30,060,000
See a trend? Now yes, I will admit that the number was more stable prior to 2012 and that there was a slight dip from 9/2011 to 12/2011, so "period over period" really means the four quarters of 2012, but the pile-on is alarming. It is also likely to get worse (as discussed above) given RICK's liquidity issues.
Oh, and debt did NOT go up in proportion to property, at least not year over year as set forth in the September 30th 10K. Form September 30 of 2011 to September 30 of 2012, property increased by approx. $14 million while long-term debt rose by almost $27 million. Yes they went up in proportion for a single quarter (Q4 2012), but the overall trend is disturbing and they clearly used additional long-term debt of at least $13 million to finance ongoing operations. Further, those debt numbers will likely continue to rise given RICK's current liquidity issues.
CHECK.
Let me know if there is anything else that I can do to help. :)
Jeez, Rick you make keep going back to the balance sheet. But that is a good thing, because the more I look the less discouraged by it I feel.
Anyway, let me explain why you are wrong in a bit of detail.
You statement that there is no equity value if you back out good will is true, but highly misleading. Let me explain why with an analogy.
Suppose there is a great burger restaurant in town. "Joe's Burgers". Is well know for the best burgers in Seattle and has consistently won awards for it. It is also known to have the hottest and friendliest waitresses. It has been in business for 30 years and has a solid reputation. One day, however, Joe decides it's time to retire so wants to put the business up for sale. Now what is the value of the business? So guys who have formed a corporation to scope of good business decide to look into.
Well their commercial real estate alone is appraised and found to be valued at 1.5 million. The corporate guys however feel that the business is worth 2.8 million. So they go and talk to the old man. After telling them their plan namely he has something that works and they don't intend to change it, and they even want him to be a director on the board the old man says he will part with it for 2.4 million. So our guys go to the bank at get a loan for 2.4 million to buy the business.
Now what does this look like on the balance sheet? Do they mark it as 1.5 million with 2.4 million in debt? Nope they mark it down at 2.8 million, because they know the business is worth far more than vacant real estate. They getting the existing managers who have a knack for hire the hot waitressed but making them work. The are getting the best burger cooks. They are getting a smooth transition, with the old man on the man. They are getting the recipes. They are keeping the name. They are keeping customer loyalty.
Now according to the way you would evaluate things the debt exceeds assets if you back out good will so they are screwed. Also, by your goofy logic since assets (minus goodwill) is less than debt they must be losing money. But that is not the case. The business was making good money before and add to that 5% interest paid on the debt ($140,00 y) and it turns out they are still highly profitable.
Now a couple of months into the transition our boys notice that things are going well. Since nothing changed, as advertised, customers have remained loyal. Our boys did notice one thing, however. The parking lot is always full. So they figure if they made it bigger they could increase revenue, and earnings. So they take out another $300,000 in debt to expand the parking lots and have them repaved. According to you just another $300,000 in debt, which might only increase the appraised real estate value by $150,000. (But our figure it's worth more. For this particular business a parking lot is particularly important so it's worth more than it would be to a business with less car traffic.)
Ok, Rick, so do you see why marking goodwill as "0" when you are expanding is not fair?
For some reason you seem to assume that is going to into some kind of a vacuum, to hide the fact that they are losing money. But they are not losing. Even with debt servicing costs RICK is profitable. The appraised real estate value with no goodwill would only be the appropriate metric if they were forced to liquidate in a fire sale.
Is the debt kind of high for the amount of time they've been business? Maybe. Would have to look more into the details of their expansion strategy. Judging from the top line revenue growth it appears good.
Yes they are taking on debt. It's probably to buy property, and, yes, if they are acquiring existing businesses it is no surprise it gets marked as some "goodwill" in addition to raw real estate value. (See how "goodwill" is increasing on their balance sheet. Well now you know why.) (And to correct another on of your mistake, they are mark property depreciation on their balance sheet).
Finally, even if goodwill really was 0 (ridiculous) $10 million in debt is not too bad if you have $100 million in real estate not including real estate costs. I personally think all real estate include commercial is setting itself up to do very well in the near future. A 10% upward fluctuation bring it back to even.
I'm actually tempted to buy 1500 shares "just for fun", since I like the revenue growth. The balance sheet isn't an "A", but it's not the "F" you say it is. Combine it with growth, if they are telling the truth, it's not bad. I could see it doubling to a PE of 23 if they can keep growing earnings at 23% (yoy).
Only things I don't like are the illiquidity. The fact that I view strip club managers as "lying thieving whores in suits" (might be a good job for you or tittyfan) so I won't trust them not to cook the books. Government cracking down due to "human trafficking" is a concern, but, OTOH, look out a bit, I think prostitution gets legalized throughout the US far earlier than anyone expected. (Legalization of MJ here and in CO suggests a wave of "social liberalization" about to hit.)
So there you have it RickyBoy. Let me know, in the future, if you have any trouble with basic accounting concepts like why "goodwill" is included in assets, and I'll try my best to help you out. Hell, a shifty fast-talker like you might be a good guy to have a strip club manager. Maybe get some of us here to buy up some Rick and we'll put pressure on the board for them to hire you. :-)
If that post was "tl;dr" for some I would just say look at short interest. About 1.4% on RICK. GOOG, just to a pick random other, but well known, NASDAQ stock to compare it against has 1.6% short interest. If they were losing money as fast as RICK claims and about to be swallowed by debt, I think the short interest would be a bit higher than that. I've seen stocks with short interest all the way up to 50%.)
Dougie, you REALLY could have spared us the multi-paragraph dissertation on the concept of Goodwill. ;) And most serious analyses of the current financial strength of a company back out goodwill when analyzing a balance sheet. Why? Because it is an amorphous conceptual asset with uncertain real future value.
Keep in mind too what I also pointed when I indicated that I would never touch the stock:
"(5) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.)."
Now in their defense, revenues and net income went up, but so did the cost of debt servicing. And their debt is going to go up yet more for all of the reasons that we have discussed. Heck, the current long-term debt number of 64mm doesn't even include 6mm that converted over to short-term debt, but will likely be refinanced back into long-term debt as RICK simply cannot afford to pay it off now.
Now how will the company fare in the long run? Fuck if I know, but I do not trust it to be able to withstand too many serious setbacks without a restructuring given its current financial condition, most notably including its poor liquidity picture and high debt load.
rickyboy: "Dougie, you REALLY could have spared us the multi-paragraph dissertation on the concept of Goodwill. ;) "
If you demonstrate, as you did above that you don't get it, then I have to try and help you long. Rather than hate, you could at least say "thanks".
rickyboy: " And most serious analyses of the current financial strength of a company back out goodwill when analyzing a balance sheet. "
"Most", huh, RickyBoy? Your thinking is a overly rigid and "hard and fast" rules based as usual.
In this case, they are expanding, taking on debt, buying real estate, in an industry in which a good part of what they are buying does have a large goodwill component. Normally, lots of debt = bad, but you got to look at in context. Since your "analysis" above did not, I provided that context for you. Again, you're welcome.
RickyBoy: " but so did the cost of debt servicing."
Well they took on a lot more debt, so yeah, that's not too hard to imagine of happens... :-)
" And their debt is going to go up yet more for all of the reasons that we have discussed. "
You say it said it was because assets (minus goodwill) were less than debt. Debt service appears to be a small part of why their debt is going up. Most it's because they appear to be in an acquisition expansion phase, and even appear to be using some of their existing cash to fuel that. It's a super aggressive strategy to keep that little cash around, I agree, but if they hit it (i.e. US economy takes off this year) they'll look like genius. In any case, fortune favors the brave.
" but will likely be refinanced back into long-term debt as RICK simply cannot afford to pay it off now."
Good time to do it now while rates are still low, huh?
" I do not trust it to be able to withstand too many serious setbacks without a restructuring given its current financial condition, most notably including its poor liquidity picture and high debt load. "
Sort of agree with you. They are making a big bet that now is the right time to expand. I agree that the economy will probably take off in the US as they are betting on. Then their revenue/income is up. Their real estate holding go up in value, and they can use the excess revenue to pay down the debt. Or, more likely, if they do grow at a nice clip, wait for the price to get back the mid teens again, and do a secondary.
You sure try to project yourself as a super aggressive, have no fear of risk taking guy RICK. RICK seems totally like the way the image of yourself would run a company. Plus, you got the lying thieving whore in a suit part down. Again, I'm surprised your not in the management of this company. Even the friggin' name is screaming out to you!
(For those not familiar with my attitude about Rick, the last part is, of course a joke. He tries to project this image of himself as rich, fearless, entrepreneur. He tries so hard though, I think it's fake and he is just a low level sales guy they send to places like butt-fuck Kansas which is why he gets to visit strip clubs. As for being aggressive, the I learn about him, the more of a complete pussy he seems to be. (Sort of missed that part at first, because the massive ego is all anyone can see at first.))
RickyBoy: "And most serious analyses of the current financial strength of a company back out goodwill when analyzing a balance sheet"
Analyst sentiment is actually very positive on this one, so I guess the lack of equity after goodwill is subtracted doesn't concern them too much, huh? So are you going to throw your hat in with "serious analysts" Rick? Or will it be your usual strategy. Cite them one minute when it serves your needs, and, dismiss the next when it doesn't forget what you said in the previous minute. So which way? Do we go with the "serious analysts" on this one or not? Tick-tock, tick-tock, Rick....
During my retirement I took a long look at RICK as a possible investment. I went over an annual report very diligently (2008 or 2009 annual - I forget which one).
When I read a balance sheet I am most influenced by the cash line. From my experience running my own business I know that all other things can be manipulated on a balance sheet. Cash is pure and visible for all to see. All other things flow from the cash.
Much more important for me when analyzing a company's annual are the footnotes. The RICK report had a flood of footnotes; cockroaches abounded in those footnotes, cockroaches that scared me.
#1 was a huge balloon debt payment due in the future (2013?...2015?..can't remember). My estimate was the cash line would have trouble supporting the interest demands of this new debt. RICK's only hope for new debt financing would be at 'junk' rates.
#2 was the Las Vegas operation. RICK had the curious ability to lose money operating a SC in Las Vegas! Duh? Las Vegas operation sucking cash from the rest of the corporation? Management....shake your heads!
#3 was a curious method of corporate financing that RICK had to 'fess up to in the footnotes. It was a curious scheme involving put options on its own stock! Betting on a fall in your own stock? That was a real red flag for me.
#4 was the real estate. RICK does not own all the real estate under their clubs. Not owning the real estate under three of the most profitable clubs worried me. Ownership of the real estate was not adequately explained for me. Another red flag. I got a hint of insider ownership of some of this real estate - didn't like that one bit.
#5 was the small float of stock and micro-cap nature of the company. I am not afraid of all micro-cap situations - I have made serious cash with investments in oil and gas micro-caps but in that field I have serious advantages over off-the-street investors. In RICK stock I would just be another sheep waiting to be fleeced.
I have not cast an analytical eye at RICK since then - no interest in the company at all. Are there any changes at RICK since I took a look at the company?
Another thing I did during my retirement was ponder buying a club in Alberta. I got access to the audited books when I convinced the owner of my bona fides. I didn't like the return on investment indicated by the books and the price that the owner was asking. Not much chance of real estate delight; this joint was in a fading industrial area.
I strongly suspected skimming so I did some serious due diligence. I sat in that club every day for an entire week and watched operations as carefully as I could, trying to follow the cash. Day time operations were very straight forward. Decent lunch crowd, slow booze sales until about 6:00PM. Interesting things about this club: the change machine - stick in $20 bill get 20 loonies to throw at dancers on stage as tips and paying for private dances must be done ahead of time at the bar (bartender takes cash and makes written note of each dancer and number of dances she sells).
When cover charge applies at 7:00PM things got more interesting. Every day just before cover charge applies a flunky and bouncer come and gather cash from bartender and waitresses, empty change machine of $20 bills and restock with loonies, go to office with cash. During the evening they will restock the change machine if necessary and gather cash from door girl. Sunday through Thursday this routine was the same. Friday and Saturday were different - no flunky, the owner gathered the cash. No real surprise, the joint was much busier those two nights. BUT....I saw the owner pocket some of the cash from the change machine and bar every time he did his little run. Not all the cash made it into the satchel that went into the office.
During the week of my due diligence I estimated the business was 90% cash, 10% credit card (club didn't even accept debit). Booze sales were probably 75% beer (400% mark-up), varying mark-ups on liquor, wine, and soda (as high as 700% on some liquor). The most profitable drink sold in the joint, by far, was the soda. As a profit centre I considered food sales to be insignificant compared to the other cash sales. Cameras kept a watchful eye on bartenders and bouncers carefully recorded all booze brought out from storage to the bar as needed; didn't seem to be much employee booze 'shrinkage' to me.
I am 100% certain that the owner was doing some serious skimming. I really tried to get him to show me the 'real' books before the cash was recorded for the auditors and tax people. I didn't get anything but a sly grin from the guy.
Financial statements can be manipulated and insiders can fleece outsiders.
Long ago I worked for a medium sized state bank, which was controlled by the CEO and his family. One of the measures that the state regulators looked at was the ratio of earning assets (loans to customers) to fixed assets (mostly the land and buildings of the bank branches). Our CEO was no dummy and he realized you can improve a ratio not only by increasing the numerator but also by decreasing the denominator. So he had the bank sell its land and buildings and then lease them back. The land and buildings were sold to J&J investments, which turned out to be a partnership of the CEO and his wife. Of course J&J made a very nice profit on the lease deal. And where did J&J get the cash to buy the assets? J&J borrowed the money from the bank!
If those are the kind of shinanigans practiced by bankers, you can only imagine what strip club insiders are up to.
jack and art: Yeah, my initial instinct on this one was just forget it due to the nothing liquidity and the fact that I know exactly what strip club managers are like. (It seems that in the SC world some lying, thieving whores where bikinis and dance on stage, and while others wear suits and attend board meetings.)
Just looking at the balance sheet available on google, and not going beyond that, it looks like a decent growth story on the surface right now.
It's tempting to put up a very small investment "just for fun", but if digging deeper shows there is evidence of lying on the balance sheet or using accounting tricks to seriously mislead, then forget even that. Like I say seems like a management position there would be a perfect fit for the likes of RickyBoy or tittyfan.
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Even now, it:
(1) is trading at about 1/3 of its 5 year high;
(2) has basically no real equity value once you back out goodwill;
(3) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills;
(4) continues to pile on long-term debt period over period;
(5) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.); and
(6) despite all of these challenges and issues, trades at an absurd 30x EPS.
This stock might be nice as a novelty holding, I wouldn't want to stake any of my retirement on it.
I'm sure they will sorely miss your 100 shares.
Today they traded 8,000 shares around 8.63. Once volume gets that low price is basically meaningless.
Two days ago, almost 1% of its market cap turned over at close to the price it sits at now. Two weeks ago, there were 2 days in a row where well over 1% of its market cap changed hands at approx. $9 per share.
Your investing 101 insights are about as credible as your club reviews. You might want to stick with something that you understand better from first hand experience, such as psychiatric disorders. ;)
Look at the moves on high volume not low if you want the real story. If there is no high volume like in this stock then it's a setup. In this case I would say setup for the downside too. If they can get it under $5 or $3 in the future higher margin requirements will kick then you'll see some real volume. On the other hand you can't short it either becaus it's so ease to make a fake move up if it's only trading $250,000 day.
Yep you say volume is meaningless but that you know what you are talking about. Hilarious. It!s the Nasdaq Rick you better look at some absolute numbers and not get fooled by percentages. Also look what happening on those high volume days (should be in quotes), eg biggest down for the Dow this year on high volume of course even a fraud stick like this would be affected.
First BS thing from RickyBoy's "analysis" I notice is:
RickyBoyDugan: "(6) despite all of these challenges and issues, trades at an absurd 30x EPS"
WTF? Did RickyBoy pull that number of his ass or can't he do basic arithmetic? Google, and Yahoo as well my broker all say PE is 10.20. Look it up, RickyBoy!
Now if this stock wasn't outright fraudulent (as the Rickster is - proof saying PE is 3x as high as it actually is 10) then a PE of 10 is quite reasonable.
Also quarterly earnings growth (YoY) is about 23%. Again, if the company wasn't obviously outright fraudlent, and you could anticipate that growth could continue, a PE around the growth percentage, i.e. 23 would be reasonable.
Now RickyBoy is sort of right about the debt situation being not so good. (* for the third time all of this hypothetical analysis is assuming their books can even be believed which I doubt...) But's it as bad as RickyBoy claims.
They claim $80 million in real estate, about $7 million in cash (very light, which is probably why they have all that debt). Goodwill and other intangibles are about $100 million. Debt is about $100 million. So when you back out good will and other intangibles debt/equity around 1. Not great but not a complete disaster either.
If you could somehow argue that RICK was a potential growth stock, their debt situation won't be too great a concern - might even be needed/attractive for growth if they had good plans on how to spend it to expand (companies like SIRI have comeback from worse debt situations than that).
But are there really still growth opportunities in the strip club space that has been around this long? What does RICK have to offer in this space that is new? Or, otherwise, what is new in the strip club space?
Answer: nothing. If anything I see more crackdowns on "human trafficking" allegations.
In any case, analysis of a most likely fictious balance sheet is a bit amusing (just to show how far off the RickyBoy was with his "analysis"), but like I say when a stock with supposed market cap of $80 million can only generate $60,000 in a day of trading on the NASDAQ you got to be worried without even bothering to look at anything else.
How are you going to move any money into it, or get it out before the house of cards fall? Haven't look at the typical spreads, but with $250,000 average total (not net in or out) a day, you got imagine you are going to get zinged even on that.
RickyBoy: "some would contend that every piece of trade data is important with a thinly traded micro-cap stock."
No what happens in micro-traded markets is more likely to be non-sense. Maybe the market maker was just bored so did a naked short of 100 shares and then bought them back every 15 minutes, just to amuse himself and pretend there wasn't 0 volume. He would be putting way less than $800 at risk each time, so hardly a stretch. Doing just that would practically account for all the volume right there.
You really ought to double check your facts and learn the backs before you flap your big trap, RickyBoy. You might be willing to bluff some (PE of 30 when it is actually 10), but I'll fact check your ass and call you down, bitch!
That said, investing into a strip club could actually be profitable. (Some of these clubs obviously have owners who are making a profit.)
Let's break it down point for point:
" (1) is trading at about 1/3 of its 5 year high;"
Ok, true, and some people only like to buy break out stocks, but you can still find good values that are well off their 5 year highs. Take BAC for example. So this fact is meaningful, and Rick got it right, but not a KO in isolation. Well give him a check on that one.
" (2) has basically no real equity value once you back out goodwill;"
This one is completely wrong. They have value in real estate and a bit of cash, and other tangible assets working out to around $100 million.
" (3) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills;"
Current liabilities are about equal to current assets if you exclude goodwill and intangibles. Say "far in excess" is a stretch. Right now earnings are positive, and it looks like they are taking on debt for expansions. In theory the plan would be increase earnings and use the proceeds to pay down debt over time. Give RickyBoy a strike on this one.
" (4) continues to pile on long-term debt period over period;"
Long term debt was flat around $30-35 billion of a few years and then jumped last year. Presumably taking on debt to expand. Saying "period over period" is definitely false. Give RickyBoy a strike on that point.
" (5) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.); "
I actually think Ricky got this one right. We'll give him full points on that one.
" (6) despite all of these challenges and issues, trades at an absurd 30x EPS."
Again factually incorrect. Not sure how Rick bungled that one. He probably had already decided the stock was a no buy at this point, and 30x EPS fit into his confirmation bias, so he didn't bother to check. Or maybe he can't do basic arithmetic. Again, though, if it was a more consistent growth story, 30 EPS might actually be a sign of strength. (Say they had consistent quarterly and annual earnings growth around 30%). So Rick complete strikes out on that one.
Final score:
1) True and relevant enough to give him the point (1)
2) Factually incorrect (0)
3) Factually incorrect (0)
4) Factually incorrect (0)
5) Full points on this one (1)
6) Factually incorrect, and even if true not necessarily relevant (0)
So final grade for Ricky's analysis 2/6=33%. A big fat, F!
As far as most of the rest of that is concerned, of course the situation is not good and thanks for essentially rehashing the following:
It...
(1) has basically no real equity value once you back out goodwill;
(2) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills;
(3) continues to pile on long-term debt period over period; and
(4) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.).
And to give no credence at all to market trading as an indicator of perceived value is ludicrous. The reason that the volume is so low is because the company is so small. First off, no institutional investor could take a big enough position in the company for it to matter without triggering Section 13/16 filings and other potential reporting issues and restrictions. Second, trying to purchase even 100,000 shares would probably lead to substantial volatility (read price spike) given that it only trades 30k per day on average, so even taking a $1mm position would be difficult. Third, the stock would be considered illiquid by many investors, including pooled vehicles, as any large stake would be extremely hard to exit without taking a beating on the way out or working the sale over several weeks.
Net-net, it is simply not a desirable spot to play in for most large investors, but that does not mean that the marketplace is not a reasonable gauge for its current trading value. The market never lies dude, we just don't understand her sometimes. ;)
Still I would never trade it, because the spreads are probably fantastic. Even moving in a modest $50,000 to $100,000 would be enough to move the stock up too. If you actually could get in at a decent price good luck getting out quickly at a decent price if you needed to.
You are also correct that it is too lightweight for institutions moving into it, so you probably just get some occasional retail trading on thin volume, making price moves and current price less meaningful than for stocks with decent caps.
Is that current price fair if everything on their balance sheet is accurate? It's actually not bad if they can maintain earnings. If they can grow, it's undervalued. Given the kind of people we know to be involved in strip club management (lying thieving whores in suits!) would I trust that they weren't up to accounting tricks? Hardly.
Also, even it was guaranteed the accounting was legit I still won't touch it due to difficult getting money in and out quick and the fact that the spreads are probably fantastic.
I want decent cap stocks (min $1 B, preferably >$10B) where you can sell a couple of hundred thousand and the market gobbles it up in a few second. Something like AAPL is even better. Sell a few hundred thousand and you don't even move the needle.
I will say after looking at it in some more detail,
1) if their accounting is legit,
2) if they show evidence their growth strategy is working,
3) someone is willing to move money in slowly (or gets lucky and find a seller for a "large" bid),
4) same person can ride out the volatility
5) same person is willing to get out slowly
then maybe it is investable. A few too many "what if"s for my liking though.
Looks like you are the ones who made a few goofs there. (I explained specifically where above. People can download the balance sheet and see for themselves.)
http://www.google.com/finance?q=NASDAQ%3…
Ricky was probably just looking at quarterly data over the last year. In that case real estate holdings which is a major part of their assets isn't listed. It only shows up if you switch to the annual view. Yeah, if you mistakenly miss their real estate holding it looks like they have virtually no assets.
Similarly, debt did go up quarter by quarter last year ("period by period". If you look at the annual data though, that's an anomaly. Again, I would put my money they were acquiring new properties - either building them up from scratch or buying them from others. Notice debt increase by amount the real estate does - hence my guess.
So, yeah, Ricky's big goof seems to have been not to include the value of their properties in his "analysis". Now that I've pointed this out to him let's see if he is "man" enough (as he puts it above) to admit this, or just going to stick to "I am right; you are wrong; but I'm not going to explain why or get into facts".
Now back to the stock:
Revenue is actually increasing nicely, if they could get expenses under control. Also I'm not sure it is fair to completely drop "good will" and "other intangibles" from assets. The name is worth. Having strippers other employees in their network ready to go to work for them is worth something. Customer loyalty... Is the value of that what they say? Who knows... If the stock wasn't so lightweight might be worth looking at.
The big difference as Rick points out is that RICK has little institutional support. RICK is probably influenced more by insiders than anything else. Many people may own it just for shits and giggles.
I would like to see Rick comment on the big parts of his analysis he got wrong:
- Failed to account for real estate in his analysis of liabilities versus assets
- Only looked at debt growth over the last four quarters versus the last few years, and, even then, because he forgot real estate did not consider what that debt might have been used for
Remember your own words Rick, "I'll take the hit when it is earned, because that is what a man does. ;)". Let's see if you are a man here, or not! ;-)
As for volume per day relative to shares outstanding. Let's compare using "Key Statistics" from Yahoo! finance:
AAPL: 1%
GOOG: 0.6%
MSFT: 0.6%
BAC: 1.5%
SCHW: 0.8%
RICK: 0.3%
So comparing to GE seems like a bit of cherry pick. Also GE is an NYSE stock not NASDAQ, so further clouds the analogy.
I would say the reason for the low relative volume is not only lack of institutions, but it's not a got a trading vehicle even for day traders. Even moving in $50,000 $100,000 would make something with average volume of $250,000 a day jump.
http://finance.yahoo.com/q/it?s=RICK+Ins…
Most are piddly little deal for $10-20k, but somewhat larger ones around $100k appear to be sales. Would have to how much stock these guys are getting for comp to know if it's significant or not, but on the surface insider activity appears negative.
About 20 years ago I went to a nephews afternoon soccer game. All the soccer moms were there and one man. We got talking and he was the owner of two strip clubs. One of them has become my favorite and it appears to be very well run. Management is stable, there's a cop at the front door (getting time and a half) who keeps an eye on the parking lot and the other one closed. More than 1/2 the girls offer extras in VIP and no one seems to get their panties twisted. Drinks are average in cost, and the waitresses don't push drinks. Rub girls are $10 per song and LD's are $20 per song. VIP is by the hour only with $170 to the house and $200 to the girl (+extras). Dancers tip the DJ, the house mom, the makeup artist, and the bouncers, but usually only $5 each days and $10 nights. The owner makes a fortune. The license is worth at least a quarter million and overhead is predictable and reasonable. He owns the building and the attached restaurant and frequently upgraded and kept very good looking and safe. Most dancers are 7 - 10's and enjoy working there (compared to other clubs where they've worked. For all of these reasons it is a money-maker. Most clubs are not run this way and instead have owners/managers who are trying to get a fast buck. Dancers are employees and are payed a paltry amount and management doesn't keep track of their lap dances, just VIP. The waitresses handle the VIP rooms, take the dancers off the stage rotation when they're otherwise occupied and gently knock on the entry way when there's 5 minutes left. I've heard stories of waitresses getting in on the action in VIP but have never experienced that.
My point is that properly run and managed these clubs can be a gold mine. There are other factors (location, location, and location), clientele, etc. but these too, can be managed.
(2) has basically no real equity value once you back out goodwill...
When you back goodwill out of stockholders equity, you actually have a negative number. And property is already included on the balance sheet, and at rosy valuations to boot given that it is carried at cost when many of those properties were purchased during the boom times.
CHECK
(3) has current liabilities far in excess of current assets, meaning that it will likely have to incur more debt soon to pay its bills...
Current assets - minus current liabilities = almost -$10mm. This means that they will need to either have an historically incredible month (unlikely) in order to cover their current bills PLUS pay ongoing expenses that cannot be deferred (namely salaries and COGS) or they will have to either sell something or add on yet more debt.
The numbers are what they are. If one must pay more tomorrow than one can collect by tomorrow, then one must find the extra cash somewhere.
CHECK.
(4) continues to pile on long-term debt period over period;
December 31, 2012: $64,090,000
September 30, 2012: $56,925,000
September 30, 2011: $30,060,000
See a trend? Now yes, I will admit that the number was more stable prior to 2012 and that there was a slight dip from 9/2011 to 12/2011, so "period over period" really means the four quarters of 2012, but the pile-on is alarming. It is also likely to get worse (as discussed above) given RICK's liquidity issues.
Oh, and debt did NOT go up in proportion to property, at least not year over year as set forth in the September 30th 10K. Form September 30 of 2011 to September 30 of 2012, property increased by approx. $14 million while long-term debt rose by almost $27 million. Yes they went up in proportion for a single quarter (Q4 2012), but the overall trend is disturbing and they clearly used additional long-term debt of at least $13 million to finance ongoing operations. Further, those debt numbers will likely continue to rise given RICK's current liquidity issues.
CHECK.
Let me know if there is anything else that I can do to help. :)
Anyway, let me explain why you are wrong in a bit of detail.
You statement that there is no equity value if you back out good will is true, but highly misleading. Let me explain why with an analogy.
Suppose there is a great burger restaurant in town. "Joe's Burgers". Is well know for the best burgers in Seattle and has consistently won awards for it. It is also known to have the hottest and friendliest waitresses. It has been in business for 30 years and has a solid reputation. One day, however, Joe decides it's time to retire so wants to put the business up for sale. Now what is the value of the business? So guys who have formed a corporation to scope of good business decide to look into.
Well their commercial real estate alone is appraised and found to be valued at 1.5 million. The corporate guys however feel that the business is worth 2.8 million. So they go and talk to the old man. After telling them their plan namely he has something that works and they don't intend to change it, and they even want him to be a director on the board the old man says he will part with it for 2.4 million. So our guys go to the bank at get a loan for 2.4 million to buy the business.
Now what does this look like on the balance sheet? Do they mark it as 1.5 million with 2.4 million in debt? Nope they mark it down at 2.8 million, because they know the business is worth far more than vacant real estate. They getting the existing managers who have a knack for hire the hot waitressed but making them work. The are getting the best burger cooks. They are getting a smooth transition, with the old man on the man. They are getting the recipes. They are keeping the name. They are keeping customer loyalty.
Now according to the way you would evaluate things the debt exceeds assets if you back out good will so they are screwed. Also, by your goofy logic since assets (minus goodwill) is less than debt they must be losing money. But that is not the case. The business was making good money before and add to that 5% interest paid on the debt ($140,00 y) and it turns out they are still highly profitable.
Now a couple of months into the transition our boys notice that things are going well. Since nothing changed, as advertised, customers have remained loyal. Our boys did notice one thing, however. The parking lot is always full. So they figure if they made it bigger they could increase revenue, and earnings. So they take out another $300,000 in debt to expand the parking lots and have them repaved. According to you just another $300,000 in debt, which might only increase the appraised real estate value by $150,000. (But our figure it's worth more. For this particular business a parking lot is particularly important so it's worth more than it would be to a business with less car traffic.)
Ok, Rick, so do you see why marking goodwill as "0" when you are expanding is not fair?
For some reason you seem to assume that is going to into some kind of a vacuum, to hide the fact that they are losing money. But they are not losing. Even with debt servicing costs RICK is profitable. The appraised real estate value with no goodwill would only be the appropriate metric if they were forced to liquidate in a fire sale.
Is the debt kind of high for the amount of time they've been business? Maybe. Would have to look more into the details of their expansion strategy. Judging from the top line revenue growth it appears good.
Yes they are taking on debt. It's probably to buy property, and, yes, if they are acquiring existing businesses it is no surprise it gets marked as some "goodwill" in addition to raw real estate value. (See how "goodwill" is increasing on their balance sheet. Well now you know why.) (And to correct another on of your mistake, they are mark property depreciation on their balance sheet).
Finally, even if goodwill really was 0 (ridiculous) $10 million in debt is not too bad if you have $100 million in real estate not including real estate costs. I personally think all real estate include commercial is setting itself up to do very well in the near future. A 10% upward fluctuation bring it back to even.
I'm actually tempted to buy 1500 shares "just for fun", since I like the revenue growth. The balance sheet isn't an "A", but it's not the "F" you say it is. Combine it with growth, if they are telling the truth, it's not bad. I could see it doubling to a PE of 23 if they can keep growing earnings at 23% (yoy).
Only things I don't like are the illiquidity. The fact that I view strip club managers as "lying thieving whores in suits" (might be a good job for you or tittyfan) so I won't trust them not to cook the books. Government cracking down due to "human trafficking" is a concern, but, OTOH, look out a bit, I think prostitution gets legalized throughout the US far earlier than anyone expected. (Legalization of MJ here and in CO suggests a wave of "social liberalization" about to hit.)
So there you have it RickyBoy. Let me know, in the future, if you have any trouble with basic accounting concepts like why "goodwill" is included in assets, and I'll try my best to help you out. Hell, a shifty fast-talker like you might be a good guy to have a strip club manager. Maybe get some of us here to buy up some Rick and we'll put pressure on the board for them to hire you. :-)
Keep in mind too what I also pointed when I indicated that I would never touch the stock:
"(5) has an income stream that is highly susceptible not only to economic conditions, but also governmental actions of various types (particularly state and local in the form of more regulation, club raids, etc.)."
Now in their defense, revenues and net income went up, but so did the cost of debt servicing. And their debt is going to go up yet more for all of the reasons that we have discussed. Heck, the current long-term debt number of 64mm doesn't even include 6mm that converted over to short-term debt, but will likely be refinanced back into long-term debt as RICK simply cannot afford to pay it off now.
Now how will the company fare in the long run? Fuck if I know, but I do not trust it to be able to withstand too many serious setbacks without a restructuring given its current financial condition, most notably including its poor liquidity picture and high debt load.
If you demonstrate, as you did above that you don't get it, then I have to try and help you long. Rather than hate, you could at least say "thanks".
rickyboy: " And most serious analyses of the current financial strength of a company back out goodwill when analyzing a balance sheet. "
"Most", huh, RickyBoy? Your thinking is a overly rigid and "hard and fast" rules based as usual.
In this case, they are expanding, taking on debt, buying real estate, in an industry in which a good part of what they are buying does have a large goodwill component. Normally, lots of debt = bad, but you got to look at in context. Since your "analysis" above did not, I provided that context for you. Again, you're welcome.
RickyBoy: " but so did the cost of debt servicing."
Well they took on a lot more debt, so yeah, that's not too hard to imagine of happens... :-)
" And their debt is going to go up yet more for all of the reasons that we have discussed. "
You say it said it was because assets (minus goodwill) were less than debt. Debt service appears to be a small part of why their debt is going up. Most it's because they appear to be in an acquisition expansion phase, and even appear to be using some of their existing cash to fuel that. It's a super aggressive strategy to keep that little cash around, I agree, but if they hit it (i.e. US economy takes off this year) they'll look like genius. In any case, fortune favors the brave.
" but will likely be refinanced back into long-term debt as RICK simply cannot afford to pay it off now."
Good time to do it now while rates are still low, huh?
" I do not trust it to be able to withstand too many serious setbacks without a restructuring given its current financial condition, most notably including its poor liquidity picture and high debt load. "
Sort of agree with you. They are making a big bet that now is the right time to expand. I agree that the economy will probably take off in the US as they are betting on. Then their revenue/income is up. Their real estate holding go up in value, and they can use the excess revenue to pay down the debt. Or, more likely, if they do grow at a nice clip, wait for the price to get back the mid teens again, and do a secondary.
You sure try to project yourself as a super aggressive, have no fear of risk taking guy RICK. RICK seems totally like the way the image of yourself would run a company. Plus, you got the lying thieving whore in a suit part down. Again, I'm surprised your not in the management of this company. Even the friggin' name is screaming out to you!
Analyst sentiment is actually very positive on this one, so I guess the lack of equity after goodwill is subtracted doesn't concern them too much, huh? So are you going to throw your hat in with "serious analysts" Rick? Or will it be your usual strategy. Cite them one minute when it serves your needs, and, dismiss the next when it doesn't forget what you said in the previous minute. So which way? Do we go with the "serious analysts" on this one or not? Tick-tock, tick-tock, Rick....
When I read a balance sheet I am most influenced by the cash line. From my experience running my own business I know that all other things can be manipulated on a balance sheet. Cash is pure and visible for all to see. All other things flow from the cash.
Much more important for me when analyzing a company's annual are the footnotes. The RICK report had a flood of footnotes; cockroaches abounded in those footnotes, cockroaches that scared me.
#1 was a huge balloon debt payment due in the future (2013?...2015?..can't remember). My estimate was the cash line would have trouble supporting the interest demands of this new debt. RICK's only hope for new debt financing would be at 'junk' rates.
#2 was the Las Vegas operation. RICK had the curious ability to lose money operating a SC in Las Vegas! Duh? Las Vegas operation sucking cash from the rest of the corporation? Management....shake your heads!
#3 was a curious method of corporate financing that RICK had to 'fess up to in the footnotes. It was a curious scheme involving put options on its own stock! Betting on a fall in your own stock? That was a real red flag for me.
#4 was the real estate. RICK does not own all the real estate under their clubs. Not owning the real estate under three of the most profitable clubs worried me. Ownership of the real estate was not adequately explained for me. Another red flag. I got a hint of insider ownership of some of this real estate - didn't like that one bit.
#5 was the small float of stock and micro-cap nature of the company. I am not afraid of all micro-cap situations - I have made serious cash with investments in oil and gas micro-caps but in that field I have serious advantages over off-the-street investors. In RICK stock I would just be another sheep waiting to be fleeced.
I have not cast an analytical eye at RICK since then - no interest in the company at all. Are there any changes at RICK since I took a look at the company?
I strongly suspected skimming so I did some serious due diligence. I sat in that club every day for an entire week and watched operations as carefully as I could, trying to follow the cash. Day time operations were very straight forward. Decent lunch crowd, slow booze sales until about 6:00PM. Interesting things about this club: the change machine - stick in $20 bill get 20 loonies to throw at dancers on stage as tips and paying for private dances must be done ahead of time at the bar (bartender takes cash and makes written note of each dancer and number of dances she sells).
When cover charge applies at 7:00PM things got more interesting. Every day just before cover charge applies a flunky and bouncer come and gather cash from bartender and waitresses, empty change machine of $20 bills and restock with loonies, go to office with cash. During the evening they will restock the change machine if necessary and gather cash from door girl. Sunday through Thursday this routine was the same. Friday and Saturday were different - no flunky, the owner gathered the cash. No real surprise, the joint was much busier those two nights. BUT....I saw the owner pocket some of the cash from the change machine and bar every time he did his little run. Not all the cash made it into the satchel that went into the office.
During the week of my due diligence I estimated the business was 90% cash, 10% credit card (club didn't even accept debit). Booze sales were probably 75% beer (400% mark-up), varying mark-ups on liquor, wine, and soda (as high as 700% on some liquor). The most profitable drink sold in the joint, by far, was the soda. As a profit centre I considered food sales to be insignificant compared to the other cash sales. Cameras kept a watchful eye on bartenders and bouncers carefully recorded all booze brought out from storage to the bar as needed; didn't seem to be much employee booze 'shrinkage' to me.
I am 100% certain that the owner was doing some serious skimming. I really tried to get him to show me the 'real' books before the cash was recorded for the auditors and tax people. I didn't get anything but a sly grin from the guy.
And, of course, I didn't buy the club.
Long ago I worked for a medium sized state bank, which was controlled by the CEO and his family. One of the measures that the state regulators looked at was the ratio of earning assets (loans to customers) to fixed assets (mostly the land and buildings of the bank branches). Our CEO was no dummy and he realized you can improve a ratio not only by increasing the numerator but also by decreasing the denominator. So he had the bank sell its land and buildings and then lease them back. The land and buildings were sold to J&J investments, which turned out to be a partnership of the CEO and his wife. Of course J&J made a very nice profit on the lease deal. And where did J&J get the cash to buy the assets? J&J borrowed the money from the bank!
If those are the kind of shinanigans practiced by bankers, you can only imagine what strip club insiders are up to.
Just looking at the balance sheet available on google, and not going beyond that, it looks like a decent growth story on the surface right now.
It's tempting to put up a very small investment "just for fun", but if digging deeper shows there is evidence of lying on the balance sheet or using accounting tricks to seriously mislead, then forget even that. Like I say seems like a management position there would be a perfect fit for the likes of RickyBoy or tittyfan.