Ace River Capital Partners’ Update on RCI Hospitality Holdings (RICK)

Ace River Capital, an investment management company, released its second-quarter 2025 investor letter. The fund returned -5.33% in the second quarter. A copy of the letter can be downloaded here. The fund underperformed this quarter, primarily due to difficulties in several key holdings, despite no significant changes to the fundamental value of the businesses. The firm’s focus continues to be on a select group of high-quality small-cap companies that have sustainable economics, strong management, and the capacity to reinvest profitably.  In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its second-quarter 2025 investor letter, Ace River Capital highlighted stocks such as RCI Hospitality Holdings, Inc. (NASDAQ:RICK). Headquartered in Houston, Texas, RCI Hospitality Holdings, Inc. (NASDAQ:RICK) owns and operates clubs and restaurants. The one-month return of RCI Hospitality Holdings, Inc. (NASDAQ:RICK) was -12.42%, and its shares lost 21.70% of their value over the last 52 weeks. On August 8, 2025, RCI Hospitality Holdings, Inc. (NASDAQ:RICK) stock closed at $35.04 per share, with a market capitalization of $307.057 million.

Ace River Capital stated the following regarding RCI Hospitality Holdings, Inc. (NASDAQ:RICK) in its second quarter 2025 investor letter:

“RCI Hospitality Holdings, Inc. (NASDAQ:RICK): RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 57 clubs across 13 states and an additional 12 sports-bar restaurants with the “Bombshells” concept. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. These clubs have limited potential buyers with RICK establishing themselves as the buyer of choice for any club owners looking to sell. This provides a long runway for growth.

RICK continues to do what it does best—generate cash, reinvest it intelligently, and grow shareholder value. They remain the dominant consolidator in the gentlemen’s club industry, a space with over 500 targets that meet their acquisition criteria and very little real competition. The most recent quarter showed steady operating results and strong free cash flow. The stock remains undervalued relative to normalized earnings power, especially given the capital allocation discipline this management team has shown.”

A bustling nightclub filled with energy, illuminated by mesmerizing lights and the thumping beat of the dance music.

RCI Hospitality Holdings, Inc. (NASDAQ:RICK) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 9 hedge fund portfolios held RCI Hospitality Holdings, Inc. (NASDAQ:RICK) at the end of the first quarter, which was 10 in the previous quarter. RCI Hospitality Holdings, Inc. (NASDAQ:RICK) reported total revenue of $65.9 million in Q2 2025 compared to $72.3 million in Q2 2024. While we acknowledge the risk and potential of RCI Hospitality Holdings, Inc. (NASDAQ:RICK) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RCI Hospitality Holdings, Inc. (NASDAQ:RICK) and that has 10,000% upside potential, check out our report about this cheapest AI stock.

In another article, we covered RCI Hospitality Holdings, Inc. (NASDAQ:RICK) and shared Ace River Capital’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.