Lares Capital
Hedge fund manager, small-cap, long/short equity

Rick's Cabaret Is A Cheap 'Sin' Stock Worth More Than Double

Introduction

Numbers never lie! Well, sometimes they do. At first glance, Rick's Cabaret International (NASDAQ:RICK), an adult entertainment operator, is a dangerously leveraged small cap in a tightly regulated "sin" industry. The company has borrowed too much and now has to pay an exorbitant interest rate, which undermines its strong operational results. Rick's Cabaret should shrink its assets by paying down debt and put any growth and expansion plans on hold.

My article will argue that the actual leverage is comparable to its peers. The high interest rate is not a sign of high risk of debt investment, but the result of reluctance of mainstream lenders to do business with a "strip club" operator and a lack of...

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