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5 Vice Stocks That’ll Test Your Conscience

Sometimes sin is sweetly profitable ... but not always

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Rick’s Cabaret International

ricks185Next on the list is (ahem) “gentlemen’s club” operator Rick’s Cabaret International (RICK).

The adult sphere is an interesting subset of the vice universe in that the economics are very different from the rest. As I wrote earlier this year, adult media businesses like Playboy Enterprises have had a hard time competing with free and abundant competition on the Internet and have had to change their business models. Playboy is no longer a “publisher” but a brand management firm focused on selling its image and its bunny logo. The jury is still out as to whether this transformation will be a monetary success.

Rick’s is a different animal altogether in that — as an operator of strip clubs — its economics are closer to those of nightclubs, bars and restaurants. Unlike booze and cigarette sales — which tend to hold up well during economic downturns — strip clubs are more sensitive to the health of the economy and to the permissiveness of corporate expense accounts. That said, Rick’s revenues held up remarkably well throughout the lean years of 2008 and 2009 and have been growing steadily for the past several years.

Rick’s also is reasonably cheap at 10 times earnings and 0.8 times sales. And the company is reportedly considering spinning off its clubs into a REIT, which, if successful, could give a nice jolt to the stock price.

Alas, Rick’s is not going to be investable for most people reading this. Rick’s has a market cap of just $84 million and average trading volume of just 33,000 shares per day. This is a tiny small-cap stock that few investors are going to be comfortable owning. That said, the company does have some big-name institutional buyers, including Calpers (California-Public Employees Retirement System) and Dimensional Fund Advisors.

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