Is It Too Late To Consider Buying RCI Hospitality Holdings, Inc. (NASDAQ:RICK)?

RCI Hospitality Holdings, Inc. (NASDAQ:RICK), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGM. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine RCI Hospitality Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for RCI Hospitality Holdings

What is RCI Hospitality Holdings worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 15.05x is currently trading slightly below its industry peers’ ratio of 17.47x, which means if you buy RCI Hospitality Holdings today, you’d be paying a reasonable price for it. And if you believe that RCI Hospitality Holdings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since RCI Hospitality Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of RCI Hospitality Holdings look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. In the upcoming year, RCI Hospitality Holdings' earnings are expected to increase by 38%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in RICK’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at RICK? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on RICK, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for RICK, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with RCI Hospitality Holdings, and understanding them should be part of your investment process.

If you are no longer interested in RCI Hospitality Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.