With the medical community relentlessly focused on getting the world through the coronavirus pandemic, it comes as no surprise that 2020 was a boon for vaccine makers. While the attention these critical businesses received is well-deserved, there's a small-cap healthcare stock flying under the radar that's been better at beating the market.
The Joint Chiropractic ( JYNT -0.82% ), a nationwide franchisor of affordable chiropractic clinics, is benefiting from the general public's heightened interest in pain relief and wellness. The company went from having 12 total locations in 2010 to 560 as of Sept. 30, 2020. It's accomplishing this by creating an innovative business model that delivers fantastic financial performance.
Even after posting market-beating returns over the past few years, I believe The Joint Chiropractic could still double your money. Here's why.
Differentiated business model
The typical chiropractic office operates an insurance-based model, where patients seeking back-pain relief schedule an appointment to visit a clinic with limited hours and locations. The Joint Chiropractic completely upends this outdated structure, offering a more welcoming environment that requires no appointments and accepts private pay only (no dealing with insurance companies).
A visit to one of The Joint Chiropractic's locations costs $29 on average, compared to $77 for a traditional cash-based chiropractor. What's even more remarkable is that The Joint's services are typically priced below most competitors' insurance co-pay amounts. The company is able to do this by providing its patients with a fast and simple spinal adjustment given by a licensed chiropractor. By accepting only private pay and running locations without the need for expensive equipment, the company is able to keep administrative and operational costs low and pass these savings on to patients.
The unit economics for The Joint Chiropractic's clinics are so superb -- it sports a payback period of three-and-a-half years with operating margins close to 30% in year three -- that it attracts franchisee investors with ease. As of Sept. 30, 2020, 89% of its store footprint was franchised, and the business currently has 218 stores in active development by its franchisees. This arrangement allows The Joint Chiropractic to grow in a capital-light way.
Impressive financial metrics
Rapidly growing the number of clinics is only possible if the business is thriving. Systemwide sales, which is the total revenue derived from all locations, have skyrocketed 77% per year from 2010 to 2019. And revenue in each of the first three quarters of 2020 was higher than in the prior-year periods, despite a disruption from stay-at-home orders put in place due to the pandemic.
Comparable sales, also called comps, increased 12% in Q3 2020, while gross profit was up 21%. Comps are a key performance indicator for any retail business, and the strong growth exhibited in the most recent quarter suggestsmany remaining years of outsize gains. Furthermore, because this is a scalable business model, the gross profit margin expanded from an already-impressive 61% in 2012 to a phenomenal 89% in 2019.
On the most recent earnings call, management reiterated the goal of targeting 1,000 domestic clinics by the end of 2023, and executives think the U.S. can support 1,800 Joint Chiropractic locations over the long term. This would be more than triple the current footprint.
The company has been so successful up to this point because it's aggressively attacking a highly fragmented, $16 billion chiropractic market. With 40,000 independent practitioners nationwide, The Joint Chiropractic has a massive opportunity to gain market share by disrupting a stale industry and capitalizing on a rising interest in noninvasive treatment for pain. Google searches for "chiropractor near me" have never been higher since the data started being tracked in 2004.
Although the overall chiropractic care market slugs along, advancing less than 2% per year, The Joint is proving that it can attract customers who have never seen a chiropractor before. According to the company's February 2019 new patient survey, 26% of visitors were new to chiropractic care.
Additionally, the coronavirus pandemic has placed a renewed focus on health and wellness. With its accessible, convenient, and low-cost model, The Joint stands to benefit greatly.
The Joint Chiropractic is in the early stages of its growth trajectory. As I've laid out above, the company is clearly building an exceptional business by providing a simple and innovative solution that many Americans are looking for. And it's doing this with a lucrative franchise model, where capital comes from third parties pursuing a financially rewarding endeavor.
The stock is multiples higher than it was when it went public more than six years ago. As management continues executing on its ambitious plans, don't be surprised if your initial investment doubles.