Regis Corp. (NYSE:RGS)
trading at $42.75 as of 10/26/04

Who's afraid of the mall haircut? Apparently not many people, including this writer. The proof is in the pudding within the numbers of mall-cut maestro Regis. As much monolith as maestro, Regis, with more than 10,000 salons under names including Supercuts, Jean Louis David, Vidal Sassoon, MasterCuts, SmartStyle, and Cost Cutter (the latter two are found in Wal-Mart (NYSE:WMT) stores) in addition to the Regis namesake itself, has nearly eight times the footprint of its nearest competitor.

And it's still growing, to the tune of 1,000 or so salons per year, through almost-even store openings and acquisition growth. Scope around on its website, and you'll find a brand for just about anybody looking for a reasonably priced haircut -- afterward you can even blow the money you save in the Gap (NYSE:GPS) or American Eagle (NASDAQ:AEOS). You might discover a little more, too -- I, for one, found out I've been patronizing an offering aimed at elderly women.

And the benefits of size go beyond the ability to appeal to old ladies. Buying in bulk, Regis says, lets it pay $0.30-0.40 for what it can sell for $1, whereas competitors pay $0.50-0.60.

Simple company, simple investment
But enough intro. Here's why I like Motley Fool Stock Advisor pick Regis as an investment.

First, it competes in what are probably the only segments of the hair industry sensible for big business: the lower and middle price points. The most recent year's revenues and earnings were up 14.2% and 19% above last year's, and analyst-expected next-five-years' earnings growth is 14.4% annualized, giving the company a PEG just north of one. I consider that attractive given Regis' stability -- in fact, it has never had negative yearly same-store sales growth in its 82-year history.

So "first" is actually several reasons, the most important being that high expected growth in a fairly stable, noncyclical, nonseasonal business is a rare, and very good, thing.

Second, this is a simple business run by guys who are, to the best of my ability to discern such things, straight-shooting, forthright types. They're decidedly uncryptic in their communications, and their financial statements are flat-out role-model quality for the breakdowns they give -- arguably rivaling the clarity of those from Costco (NASDAQ:COST) and Expeditors International (NASDAQ:EXPD). And when hurricane season forced closure of some salons (along with a lowering of near-term earnings guidance), management opted to continue paying affected workers, most of whom were presumably hourly, through the closures. I'd look for that kind of character in a long-term business partner, and knowing it's there would make me a more comfortable part-owner as well.

Profit is always in style
In case you'd like to get more comfortable with the numbers these buzz cuts, prom-dos, and everything in between have been tossing back, here's a sampling from Regis' last three fiscal years:

Regis' Revenue, Income, and Cash Flow
2002 2003 2004
Sales $1,377 $1,583 $1,816
Net Income $72 $87 $105
Operating Cash Flow $148 $151 $206
*numbers in millions

Bad haircut? It'll grow back. Bloody ear? It'll scab over. (To be fair to the professionals, the only bloody ear I ever personally received was from a self-administered haircut in my younger years.) Fortunately, to paraphrase fellow Fool Phil Wohl, "It'll grow back" pretty much sums Regis up. It's the sort of stock that's not likely to surprise you much, but it if does, it should recover.

Buying the titan in what's an otherwise fragmented, yet always needed, industry is something that's hard to call a mistake, especially when that company expects yearly revenue and earnings growth percentages in the low to mid-teens for the foreseeable future. For comparison, analysts expect the S&P 500's earnings to grow at a mere 6% yearly over the next five years.

Investing is a bit like trick-or-treating -- you fancy yourself looking over your candy before you eat it, but those syringe holes are always a lot harder to catch than you'd like to admit. Though there is no guarantee of safety, I'd say it's best to stack your odds by hitting up the houses manned by the most stable-seeming people (and if you're a young James Early, hit them up repeatedly in multiple costumes), and Regis definitely gets my vote in that regard. No 10-bagger here, at least not for a long, long time, but at least a tasty stock you can bite into with some degree of confidence.

Tom Gardner picked Regis in Motley Fool Stock Advisor last February. Since April 2002, his selections are up 36% vs. 11% for the S&P 500. See what else he likes -- risk-free.

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James Early is not afraid of the occasional do-it-yourself haircut, but perhaps he should be. Either way, it has always grown back. At press time, he owned none of the stocks mentioned in this article and was in need of a haircut. The Motley Fool has a disclosure policy.