Yahoo Finance Bear of the Day: RCI Hospitality Holdings (RICK)
RCI Hospitality Holdings RICK owns and operates upscale adult nightclubs, dance clubs, restaurants, and sports bars in the United States. Its brands include recognized names in the industry such as Bombshells Restaurant & Bar, Rick’s Cabaret, Jaguars Club, Club Onyx, and Studio 80.
In addition, RCI Hospitality owns a national industry convention and tradeshow; two national industry trade publications; and two national industry award shows, along with approximately a dozen social media websites tailored to the adult retail products industry. The company was founded in 1983 and is based in Houston, Texas.
The Zacks Rundown
RCI Hospitality, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Leisure and Recreation Services industry group. This industry ranks in the bottom 50% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year:
Image Source: Zacks Investment Research
Stocks in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when they are part of a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Despite a rebound in stocks with the Dow Jones Industrial Average, S&P 500, and more recently the Nasdaq hitting new all-time highs, RICK shares have not been participating lately. The stock has experienced considerable volatility over the past year.
Past Earnings Misses and Deteriorating Outlook
RCI Hospitality has fallen short of earnings estimates in three of the prior four quarters. Back in February, the hospitality provider reported fiscal first-quarter earnings of $0.77/share, missing the Zacks Consensus Estimate by -17.20%.
The company has delivered a trailing four-quarter average earnings miss of -26.5%. A history of missing earnings estimates is a recipe for underperformance and exactly what the bears want to see.
Analysts covering RICK have been steadily decreasing earnings estimates across the board. Looking into the current quarter, analysts have decreased EPS estimates by -23.02% in the past 60 days. The Zacks Consensus Estimate stands at $0.97/share, reflecting a -25.4% decline relative to the year-ago period.
Image Source: Zacks Investment Research
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that supports a bearish viewpoint.
Technical Outlook
As illustrated below, RICK stock is in a sustained downtrend and has witnessed considerable volatility, all while the general market reaches new heights. Notice how shares are trading below both the 50-day and 200-day moving averages, signaled by the blue and red lines, respectively. The stock has been making a series of lower lows, widely underperforming the major indices. Also notice how both of the moving averages are sloping down – another good sign for the bears.
Image Source: StockCharts
RICK stock has experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below the 200-day moving average. The stock would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen more than 17% this year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to hit new highs anytime soon. The fact that RICK is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of RICK stock until the situation shows major signs of improvement.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
RCI Hospitality Holdings, Inc. (RICK) : Free Stock Analysis Report
