Is RCI Hospitality Holdings (RICK) A Smart Long-Term Buy?

Kinsman Oak Capital Partners, an investment management firm, published its “Kinsman Oak Equity Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of +1.5% was delivered by the fund for the third quarter of 2021, compared to its benchmarks, the S&P 500 Index, which delivered a 0.6% return, the Russell 2000 Index with a 4.4% return, and the TSX Composite Index that had a 0.2% gain for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Kinsman Oak, in its Q3 2021 investor letter, mentioned RCI Hospitality Holdings, Inc. (NASDAQ: RICK) and discussed its stance on the firm. RCI Hospitality Holdings, Inc. is a Houston, Texas-based nightclub company with a $660.1 million market capitalization. RICK delivered an 85.95% return since the beginning of the year, while its 12-month returns are up by 173.25%. The stock closed at $73.34 per share on November 17, 2021.

Here is what Kinsman Oak has to say about RCI Hospitality Holdings, Inc.  in its Q3 2021 investor letter:

“RCI Hospitality Holdings (RICK) is a high margin free cash flow machine with strong underlying business momentum. Our investment thesis is as follows: 1) Multiple re-rating candidate; 2) Long runway to roll up a highly fragmented industry; 3) Upside optionality from an emerging restaurant concept. We initiated a position at an ~11% FCF yield which we felt was a compelling valuation. RICK is comprised of two business segments. Segment 1: The core business is a portfolio of mature cash-flowing adult nightclubs and Segment 2: An emerging restaurant concept called Bombshells. The management team focuses on capital allocation between these two segments and will repurchase shares depending on where ROI is highest. Growth in the adult nightclub business is primarily via acquisition whereas Bombshells is organic. Sales mix by segment and revenue type is broken down in Appendix E.”

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Based on our calculations, RCI Hospitality Holdings, Inc. (NASDAQ: RICK) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. RICK was in 13 hedge fund portfolios at the end of the first half of 2021, compared to 10 funds in the previous quarter. RCI Hospitality Holdings, Inc. (NASDAQ: RICK) delivered a 19.06% return in the past 3 months.

Disclosure: None. This article is originally published at Insider Monkey.