Sex may sell, but it sure ain’t profitable

The old adage that sex sells may be true, but if an investor wanted to invest in publicly traded peddlers of sex (in all its legal incarnations), that investor would have only a few poor choices. While those choices may soon expand (when Penthouse goes public, as it is expected to do soon), the anti-prude investor should steer clear of this field.

The largest publicly-traded sex-related company, Playboy [[pla]], is the quintessential poor investment. Over the last two decades Playboy stock is up 42%, while the Dow Jones Industrial Average is up 520%. Even as Hugh Heffner continues to cavort with silicone-enhanced playmates one-third his age, the company’s centerpiece magazine continues to lose subscribers.

The story is much the same at cable-smut purveyor New Frontier Media [[noof]], where the stock has appreciated 2% over the last decade. The DJIA is up 64% over the same time period. The problem with cable porn is that it will suffer the same fate as newspapers: it is going to be crushed by internet competition. So despite a cheap P/E of 15, New Frontier will likely be a poor investment.

Rick’s Cabaret International [[rick]], a chain of strip clubs (see a commercial for it here), has been kinder to its investors than the above companies. Over the last decade it has outperformed the DJIA, 270% to 64%. But Rick’s is trading now at a stratospheric P/E of 34, which is out of line with companies most comparable to it: staffing companies such as Administaff [[asf]] and Manpower [[man]], both of which trade at P/E ratios under 15. While Rick’s provides stripping services in branded locations, it is not really that different from staffing firms that provide administrative and other services to companies. It relies upon its ability to recruit skilled workers, and its brand is far less important than the actual capabilities of its workers. Also like the staffing firms, it is vulnerable to a recession.

The last public sex company of which I am aware is the worst, yet it comes with the most wholesome reputation. This company is Berman Center Inc. (Pink Sheets: BRMC). This is a sex therapy center and website that caters to couples looking to improve their sex lives. Its eponymous founder, Dr. Laura Berman, is not only knowledgeable but also good at getting press. She has appeared on Oprah Winfrey’s show and she is a columnist for the Chicago Sun-Times. Despite the advantages the company has, its financials are a mess. The company, with a market capitalization of $12.5 million, has a book value of negative $1.3 million (see the most recent 10Q for details). The company lost $1.3 million over the first nine months of 2007 and lost $1.2 million over the first nine months of 2006. The company is also delinquent in filing its 2007 annual report.

Overall, sex makes for a poor investment, at least in terms of public companies.

Disclosure: I have no position in any stock mentioned. My disclosure policy is considered obscene in Utah, because it is transparent and it prohibits stock fraud, front-running, pump-and-dump scams, and MLM schemes.

5 thoughts on “Sex may sell, but it sure ain’t profitable

  1. Michael — i realize that its poor blogging manners to post links to your own site in the comments section but I could not find your email address on your website.

    I wanted to make you aware of a series of posts I recently wrote on NOOF that I thought you might find interesting
    http://offthebeatenpathinvestments.blogspot.com/search/label/NOOF

    I stumbled on your site by accident a few days ago and find it to be very good. I found the short ideas in the Microcap section particularly informative. Keep up the good work.

  2. No problem. I like your analysis on NOOF. BTW, I like your idea of FTAR. I have invested in similar liquidations previously. Last summer I made a nice 30% return (possibly more … I forget) in Atlantic Coast Holdings, which was at the point I bought it 90% owned by a Carl Ichan-controlled company and only had cash assets. Icahn bought it out for book value and I took the money and ran.

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