palu77

Rick's Renegotiates Debt, Stock Soars

Good summary. I like RICK to move back to around $10 before long. Once the market sees that they turned around Philly & are making progress in Vegas this company will be worth a lot of money. There is only one other company, VCGH, with a similar biz model out there but RICK's is a strong model in my opinion. Although I own both the oldest profession is not going any where.

Thanks for the contribution.

Paul

Rick's Cabaret and eHealth Bucking the Trend

Rick's has already addressed the put options for the club acquisitions.

"Mr. Langan also reaffirmed the company’s capability, if it became necessary, to repurchase the outstanding stock put options issued in connection with recent acquisitions. “We estimate that approximately $3.8 million of our cash would be required in fiscal 2009 to redeem 171,000 shares that could be put; in fiscal 2010 it would require only about $5.5 million to fully redeem all 244,000 shares that could be put under the terms of the options. This assumes a full purchase of the puts with no stock to be sold into the market. We are confident that we will be able to redeem all of the existing put options with our existing and anticipated free cash flow. We currently have approximately $4 million in cash on hand and are generating significant new cash each month. It is important to remember that in return for these options we got solid assets.”

Based on this comment, Rick's has the cash and cash flow to cover these deals. Furthermore, Rick's enter these deals knowing the downside risk and at the time had two choices to buy the clubs: 1) pay with debt or 2) use equity and ensure the debt with the puts. The later option allowed Rick's to buy the clubs at a discount because they could sell the stock "put" to them from the club owners on the open market. This in effect will reduce the cost of the club purchase by 20% at the current market price.

Again these deals were entered into willingly with full knowledge that RICK was buying clubs at 3-6x's earnings. They should be fine here and once the market realizes this the price should rebound.

Good luck.

Paul

Sirius Finally Provides Wall Street the Clarity It Demanded

Stocks are valued by market cap not share price. Long term share holders lose nothing in a reverse split. In fact a RS allows some larger players to get into SIRI. Most Mutual Funds and Broker/Dealers can't buy nor solicit stock <$10/shr to clients.

The bottom line is if SIRI RS's 1:100 then the market cap is the same at $3 as it is at $300. People buy value not stock price and right now people are afraid that there will be no value in SIRI going forward that is why it is trading at $0.25.

Paul

KSW, ePlus Look Like Bargains

Jeff,

Agreed you must consider all risks when developing a margin of safety and you are right to point out that they don't have a recurring revenue model. Still when developing an investment thesis it is important to consider risk vs. reward and using your assumption of a cash floor at $3.35 puts the risk at $1.65 per share. Where the reward with continue growth is ~$10/share, upside of $5. That is a sufficent risk to reward ratio for me as an investor.

So with that said, I don't care to pour into the day to day activities and know them intimately or else I would apply to work at the company. I put some level of trust into a managment team that has performed admirably to date and combine that info with a healthy balance sheet and develop my buy decision. Now it is in Mgmt's hands and all I can do is hope that my anaylsis is on target and modify as new information is revealed.

If I am wrong I sell when I realize I am wrong. If I am right I add to my postition when the time is right and wait to sell. I have owned KSW at $6/shr and my ananlysis still indicates that I am making a smart investment so I am adding to my position at this level.

Good luck to you in your investment decision.

Paul

KSW, ePlus Look Like Bargains

Jeff,

Couple of comments of KSW. Your evaluation is right on as far as I can tell. However, I disagree with you about margin of safety. They have $18MM in cash and $140MM in backlog. If that isn't margin of safety I don't know what is. Not to meantion that the backlog is not with one project.

1) I think is safe to say that the work resonably expected to be complete by the end of the year ($50MM) is safe. That will bring in an additional $2.2MM in earns this year or ($0.35/share).
2) The company has a floor of ~$2.90 based on the $18MM is cash on hand. Furthermore a majority of the $2.2MM in potential earnings for the rest of the year should go directly into the current cash holdings.

As for dividend, I wouldn't expect a quarterly dividend from KSW. They stated in their 10k that the companies dividend policy is set annually based on annual performance.

Overall if you look at is from a risk versus reward stand point. Your max risk is $2.13/share if KSW trades at cash. But even if KSW stops growing it will not trade at cash so lets say it trades at 3x's EPS(ttm) plus cash or $4.3/share or $0.70/share downside.

Your potential reward is $0.7*15 = $10.5 or $5.50/share upside, assuming a 15x's P/E on 2008 expected earnings.

That translates into a 7.8:1 Reward to Risk ratio. Not bad.

Good Luck

Paul