Little Excitement Around RCI Hospitality Holdings, Inc.'s (NASDAQ:RICK) Earnings As Shares Take 29% Pounding

RCI Hospitality Holdings, Inc. (NASDAQ:RICK) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

After such a large drop in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider RCI Hospitality Holdings as an attractive investment with its 13.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's exceedingly strong of late, RCI Hospitality Holdings has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for RCI Hospitality Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on RCI Hospitality Holdings will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, RCI Hospitality Holdings would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 251% gain to the company's bottom line. Still, incredibly EPS has fallen 53% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that RCI Hospitality Holdings' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From RCI Hospitality Holdings' P/E?

The softening of RCI Hospitality Holdings' shares means its P/E is now sitting at a pretty low level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of RCI Hospitality Holdings revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for RCI Hospitality Holdings that we have uncovered.

You might be able to find a better investment than RCI Hospitality Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.