The Joint Corp. (NASDAQ:JYNT) is a small-cap stock that has been on an absolute tear, skyrocketing 114% over the past year. As a U.S. franchisor of low-cost chiropractic clinics, the company has succeeded by applying an innovative business model that's new to the industry.
With revenue in the most recent quarter (ended Sept. 30) up 21% from the prior-year period, this business is exhibiting strong growth in what has been a very volatile economic environment. I think that the The Joint's market cap of $487 million could run much higher -- and do it quickly -- if the company keeps executing on its ambitious expansion plans.
Background on the business
Compared to traditional chiropractic offices that use an insurance-based model, The Joint is cheaper, requires no health insurance, and allows patients to walk in anytime with no appointment necessary. This has been very successful -- as of Sept. 30, 2020, The Joint had 560 domestic locations, which is a massive increase from the 12 clinics it had in 2010.
At an average cost of $29 per visit, it carries a much lower price tag than the average $77 fee of a traditional cash-based chiropractor. At a Joint Corp. location, back pain relief-seekers can receive a fast and effective adjustment from a licensed chiropractor. The entire visit can take as little as five minutes, making treatment more accessible and consumer-friendly for busy people.
The Joint is able to keep costs down because it does not use pricey equipment, and being able to avoid dealing with insurance companies reduces the need for unnecessary operational and administrative expenses. These cost savings are passed on to an ever-increasing number of customers. The Joint had 7.7 million patient visits in 2019, up from 6 million in 2018. And in the first nine months of 2020, patients were coming in more frequently than in the same period in the prior year.
Riding the wellness craze
Another important tailwind supporting The Joint's business is the heightened interest in non-pharmacological types of care for pain management. Google searches for "chiropractor near me" have been trending exponentially over the past decade, and patients who visit a chiropractor are 49% less likely to receive an opioid prescription to treat their pain.
Not only is The Joint offering an easy and affordable alternative to those already familiar with chiropractic care, but in 2019, 26% of the company's patients had never been to a chiropractor before. Furthermore, the pandemic has brought in higher-quality patients who are more serious about seeking this type of care. They're staying with The Joint longer, which has resulted in record numbers of active members per clinic.
While 2020 will certainly be remembered as a disruptive time, I believe one of the most important effects of the year on the long term will be that people place more emphasis on their well-being. The Joint is thriving by playing into emerging trends in care-seeking, as health becomes a growing focus for many individuals.
Taking market share
Of the overall $15.5 billion U.S. chiropractic industry, The Joint currently has only about 1% market share, with the other 99% controlled by conventional independent offices. The industry is highly fragmented, giving the company the opportunity to continue its extraordinary growth by opening more clinics nationwide. CEO Peter Holt remains confident that The Joint will have a total of 1,000 clinics by the end of 2023.
It's even more exciting that The Joint could eventually operate 1,800 locations in the U.S. And because The Joint operates a franchise model (906 cumulative franchise licenses were sold as of Sept. 30th), profit will continue to rise significantly over time. The franchise segment's EBITDA (earnings before interest, taxes, depreciation, and amortization) margin is close to 50%, much higher than the corporate-owned segment.
The business is innovating an outdated model, provides a much-needed service that is sought after by more and more people, and does this with a capital-light franchise structure. If the recent past is any indication of what the next few years will hold, investors looking to add some healthcare sector exposure to their portfolios should seriously consider The Joint.