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Is RCI Hospitality (RICK) a Great Stock for Value Investors?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put RCI Hospitality Holdings, Inc. (RICK - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, RCI Hospitality has a trailing twelve months PE ratio of 15.5, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.0. If we focus on the long-term PE trend, RCI Hospitality’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.

Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 21.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that RCI Hospitality has a forward PE ratio (price relative to this year’s earnings) of just 15.5.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, RCI Hospitality has a P/S ratio of about 1.6. This is a bit lower than the S&P 500 average, which comes in at 3.1 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, RCI Hospitality currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes RCI Hospitality a solid choice for value investors.

What About the Stock Overall?

Though RCI Hospitality might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of A. This gives RICK a VGM score — or its overarching fundamental grade — of A. (You can read more about the Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. Both the current quarter and full year has seen one estimate go higher in the past sixty days compared to one lower, each.

This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has risen by 2.8% in the past two months, while the full year estimate has moved up 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

RCI Hospitality Holdings, Inc. Price

 

RCI Hospitality Holdings, Inc. Price | RCI Hospitality Holdings, Inc. Quote

Even though RCI Hospitality has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.  

Bottom Line

RCI Hospitality is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite a sluggish industry rank, over the past one year, the industry has outperformed the broader market, as you can see below:

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.

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