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What Happened in Vegas Costs Rick's a Bundle

By Travis Hoium – Updated Apr 6, 2017 at 10:23PM

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Rick's decides it's ready to leave Las Vegas.

It's no secret that the Las Vegas economy has been a mess since the recession started. And with casinos being the big draw for tourists, gaming companies have focused on keeping their guests closer to home rather than enjoying some of Sin City's more risque venues.

Which explains why the Las Vegas club that Rick's Cabaret (Nasdaq: RICK) bought just before the economy melted down turned into a money pit for investors. And since Rick's doesn't see MGM Resorts (NYSE: MGM), Las Vegas Sands (NYSE: LVS) or Wynn Resorts (Nasdaq: WYNN) letting go of its customers easily, the company doesn't see a bright future in Sin City.

I can't blame Rick's for seeing clouds in the future of Las Vegas. This week, I wondered if Las Vegas was becoming the next Atlantic City after gaming revenue took a turn for the worst. It seems like an ideal market for Rick's, but sometimes Las Vegas leaves you with more regret than profit.

Shareholders do a dance
However, there could actually be some good news for Rick's shareholders. The rest of the business is on a comeback, and any club sale would be a boost to profit despite the blow to revenue. In the first quarter sales at existing clubs, excluding Las Vegas, were up a healthy 8.25%. A loss on the Las Vegas club would also help reduce tax expenses in the future, so it doesn't turn out all bad for shareholders.

Rick's stock trades at just 10.4 times 2011 earnings projections -- projections the company crushed the last two quarters. This could be one of the best buys of the sin stocks I follow. For now I'm going to give the company a thumbs up on My CAPS page, but I may be willing to "make it rain" on Rick's if I see another solid quarter.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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