RCI Hospitality Holdings (RICK): Bireme Capital Hit The Bullseye

Bireme Capital, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 47.1% was recorded by the fund for 2020, outperforming its S&P500 benchmark that delivered an 18.3% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Bireme Capital, in their Q4 2020 investor letter, said that RCI Hospitality Holdings, Inc. (NASDAQ:RICK) has blown past the estimates they made early in the pandemic. Bireme Capital identifies RCI Hospitality Holdings, Inc. as one of the companies at the other side of the value spread, the other end of the “barbell market”. RCI Hospitality Holdings, Inc. is a nightclub company based in Houston, Texas.  It currently has a $557.9 million market capitalization. Since the beginning of the year, RICK delivered a 57.20% return, impressively extending its 12-month gains to 253.68%. As of March 4, the stock closed at $65.10 per share.

Here is what Bireme Capital has to say about RCI Hospitality Holdings, Inc. in their Q4 2020 investor letter:

“Since March we have increasingly tilted the long book towards stocks whose businesses will improve as the pandemic fades, a strategy we first discussed in our 1Q20 letter. Now that 2020 is — thankfully — over, let’s take a look back at some of our predictions from Q1.

RCI Hospitality (RICK) is a publicly-traded owner of night clubs and restaurants. In Q1, we said:

“The company has been dramatically impacted by COVID-19, with all of its locations unsurprisingly deemed “non-essential.” The stock has fallen from a pre-COVID level of about $25 per share to an intraday low of $7 per share, the largest decline in any stock we own. Prior to this drop, we had a tiny toehold position of <.5% of NAV with a cost basis of around $15. We began buying in earnest when the price dropped below $10 per share… We believe RICK will make it through the crisis and that investors buying it at less than 3x potential FCF will be handsomely rewarded.”

If anything, this prediction was pessimistic. RICK has blown past the estimates we made early in the pandemic, when its very existence was in question. In fact, while only 10 of the company’s 45 locations were open in Q2, the company still managed to generate positive operating cash flow due to the stellar results at their “Bombshells” brand restaurants. These locations continued to perform well into the second half of 2020, with Bombshells same-store-sales up 50% for the third quarter and 18% for the trailing twelve months. RICK was trading at $10 at the end of March; it trades at $60 today.”

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In November 2020, we published an article about Greystone Capital’s RCI Hospitality Holdings, Inc. (NASDAQ: RICK) investment thesis. RICK delivered a stunning 117.84% return in the past 3 months.

Our calculations show that RCI Hospitality Holdings, Inc. (NASDAQ: RICK) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, RCI Hospitality Holdings, Inc. was in 7 hedge fund portfolios, compared to 5 funds in the third quarter.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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