HOUSTON—A market analyst by the name of RJ Towner has evaluated Rick’s Cabaret, a publicly traded owner and manager of upscale gentlemen's clubs, and has come to the conclusion that the company’s stock is worth $16/share or more. Shares are currently trading around $8.55.

Key points Towner cites include the following:

* Rick's acquires clubs at EBITDA multiples lower than their own, known as a "roll-up" strategy

* The company could receive a windfall court case that will add significant earnings

* An economic recovery should help Rick's, even if it is a recession proof business

According to Towner, the strip club business, as he calls it, has its risks—including the dubious accuracy of accounting by independent clubs Rick’s may be seeking to acquire, as well as other potentially shady practices—but the solidity of the company’s business model and management combined with a recovering economy make Towner bullish on the company’s future valuation.

A pending court decision in Texas also bodes well for Rick’s. “Rick's has quite a few locations in the highly profitable areas of Dallas and Houston,” wrote Towner. “For the last two years, Rick's has been paying a $5/head tax on each customer. However, the law has been challenged, and the Texas Supreme Court should make a decision by the end of 2011. A reversal will lead to a few million in free cash flow, and could increase traffic in Texas clubs.”

Long story short, for a small company, Towner says Rick’s “provides one of the best risk/rewards available on the market.”