Bunny hop: Shares of Playboy have surged during the past year.

Increased licensing of Playboy's brand name and famous bunny logo has helped lift profits.

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NEW YORK (CNN/Money) - Sex, like politics and religion, is usually a taboo topic to discuss in polite conversation.

But that hasn't stopped people from investing in companies that make money from peddling, uh, adult-oriented entertainment. Take Playboy, for example.

Shares are up 6.5 percent this year and nearly 65 percent during the past 12 months thanks to a turnaround in the company's financials.

Playboy (Research) recently reported a second-quarter profit, reversing a loss from a year ago, on an annual revenue increase of 5 percent.

Shares of New Frontier Media (Research), which distributes films (ok, porn) through subscription and pay-per-view channels called the Erotic Networks, have gained nearly 25 percent during the past three months.

Part of this could be due to takeover speculation. The stock shot up nearly 6 percent on Tuesday after the company said it was "considering strategic options," a phrase that is often interpreted by Wall Street as a "For Sale" sign.

So is there more money to be made in companies that capitalize on carnal desires?

Playboy is probably the safest bet, said Robert Routh, a media analyst with Jefferies & Co. He said that thanks to the company's long track record -- Playboy has been around since 1953 -- it has an enviable brand name. And Routh thinks that the company is only now starting to take advantage of it. (He doesn't own the stock and his firm has no banking relationship with it.)

The company's flagship publishing business has been a poor performer due to a weak advertising environment. Revenues sank 12 percent and the division reported an operating loss in the second quarter.

But Routh said that the company has been able to partly offset this weakness by licensing the use of its brand name and logo. Licensing revenue, which accounts for about 10 percent of the company's total sales, surged 25 percent in the second quarter. And the division is highly profitable, with operating margins of 46 percent.

"The turnaround will continue," Routh said. "People like the Playboy brand so Playboy can license the name and bunny logo and sit back and collect checks. It's a complete change from the low-margin publishing business."

In this respect, Routh said Playboy is like Marvel Enterprises (Research), the once struggling comic-book company that has turned itself around thanks to profitable licensing agreements with movie studios and other companies.

Routh added that Playboy has also benefited by increasing the number of movies available for video-on-demand. This helped lift sales for Playboy's U.S. television operations by 11 percent in the second quarter. Domestic TV operations account for nearly a third of Playboy's overall sales.

Dan Ahrens, manager of the Vice fund, which invests in companies in so-called sin sectors like alcohol, tobacco and gambling, also likes Playboy's transformation.

He said that the company's efforts to make more content available online and through wireless devices is also a good move since it lessens the reliance on the slower growth publishing division.

"Playboy has done a good job of positioning themselves on the Internet and with other forms of media. They have transitioned the company where it could be a brand for decades to come," said Ahrens, who owns the stock in his fund.

Ahrens said the stock still look attractively valued and Routh agrees. Shares trade at about 18 times 2006 earnings estimates, a multiple that Routh believes is reasonable considering that he expects earnings to grow in the mid-teens range for the next few years.

The pickings are slim when it comes to the other public companies in the adult-entertainment business.

New Frontier Media, for example, recently reported a decline in fiscal first-quarter sales and net income. So the stock's move does look like it has more to do with takeover talk than fundamentals. But Routh said he doubts that Playboy would be interested in acquiring New Frontier Media.

Ahrens said he used to own New Frontier Media but does not any longer. He said he's also avoided companies like LodgeNet Entertainment (Research), which offers movie services (including adult films) to hotel guests and Private Media Group (Research), an X-rated magazine publisher and film distributor based in Barcelona.

The only other sex-related company that Ahrens owns in the fund is Rick's Cabaret International (Research), which owns and operates several adult nightclubs (yes, strip clubs). Ahrens said a new club scheduled to open in September in New York City should significantly boost earnings.

But Rick's is a much riskier investment than Playboy. The company is tiny and thinly traded, with a market value of just $13.5 million and average trading volume of only about 10,000 shares a day during the past three months.

So if you want to add some sex appeal to your portfolio, it's probably best to stick with the tried and true Playboy.

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