Sunday, February 05, 2006

The Spa Boom: Can Cucumber Make You Rich?

2 weeks ago, we brought your attention to Royal Carribean (RCL), purveyor of luxurious cruise vacations and a stock we felt had taken an undeserved beating after the bad publicity surrounding the company had triggered a panic selloff.

If that story didn't make it obvious enough, we love leisure-related stocks. Cruises. Casinos. And spas.

The pure play on the spa boom is specialist Steiner Leisure (STNR)

Whether on land or on sea, these guys are making some serious dough off your facial addiction.

Steiner Leisure's array of services span the entire gamut of the spa experience: massages, aromatherapy treatments, seaweed wraps, saunas, steam rooms, aerobic exercise, hair styling, manicures, and pedicures.

Steiner Leisure has beaten estimates for 14 of the past 15 quarters -- if that's not growth, we don't know what is. We think Steiner deserves a higher multiple than the market is currently awarding it.

Steiner returns cash to shareholders, carries zero debt and generates a 7% forward earnings yield. There are only 17M shares outstanding and insiders own a chunk of it.

Additionally, Steiner is a play on retiring Baby Boomers -- 1 out of every 3 spa-goers are Baby Boomer couples. Metrosexuality is en vogue, meaning husbands are in the spa and not on the golf course. Besides the obvious pampering, Boomers like the medical benefits spas have to offer. Reflexology, anyone?

Today, Steiner is expanding its land-based operations -- without the "captive audience" they have on cruise ships, this could certainly pose a challenge for Steiner. However, we should not discount this tremendous growth opportunity and Steiner's incredible success hereto.

Who would've thought seaweed and cucumbers could turn into cash cows?

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