In an age when all market participants have access to the same information, gaining an edge can seem nearly impossible. But there is a way for smaller investors to secure an advantage: Look where others aren't.
Seeking out under-the-radar stocks can be a winning strategy, because by definition these companies go unnoticed by the majority of investors. One such business is The Joint Corp. (JYNT -0.55%), a small-cap stock with a current market value of $636 million that should be on investors' watch lists.
Here is why I think this stock is a buy.
Making chiropractic care accessible
The Joint Corp. operates 560 clinics in 33 states, and what separates the company from traditional chiropractic offices is the type of service provided and the cost. At an average of just $29 per visit, patients can receive a fast (in as little as five minutes) and effective spinal adjustment from a licensed chiropractor. Only walk-ins are accepted. And because it's a private-pay model, patients can get treatment without health insurance.
The average Joint Corp. clinic can see more than 1,350 patients per month, compared to fewer than half that at a regular chiropractic office. The business has created an accessible and consumer-friendly setup that has attracted people new to this type of care. In a February 2019 new-patient survey, 26% of Joint Corp. users reported never having been to a chiropractor before.
The Joint Corp. primarily operates with a membership-based revenue model. In 2019, an impressive 80% of systemwide sales came from monthly memberships. This should be music to investors' ears -- a recurring revenue stream is better than a transactional structure because it provides more visibility into the business and allows the company to maintain valuable relationships with its customers.
A scalable business model
In 2012, The Joint Corp. only had 82 locations (this is not a typo). How did the company grow so quickly? On the backs of other people's capital. It is a franchisor of its clinics, which explains how systemwide revenue skyrocketed from $8.1 million in 2012 to $220.3 million in 2019. Of the 560 locations as of Sept. 30, 497 were owned and operated by franchisees, with an additional 218 currently in development.
But if you're a prospective shareholder of The Joint Corp., don't think you've missed out on the growth. Management believes that by the end of 2023, there will be 1,000 clinics nationwide. And over the long term, they see the potential for 1,800 locations in the U.S.
Growing in this capital-light way will do wonders for The Joint Corp.'s bottom line over the next few years. The operating-income margin on the company's franchise segment was 46% in the first nine months of 2020, much higher than the 12% for corporate-owned clinics. So as more clinics are opened by franchisees, The Joint Corp.'s overall income should soar.
Look where there's less competition
Investing is hard, and the competition for market-beating returns is fierce. There are institutions out there with massive research budgets that focus most of their time and energy on the largest companies. This gives individual investors an advantage if they spend their efforts on smaller stocks.
The Joint Corp. is a fantastic growth story, and it's not done climbing just yet. Although the stock has had quite the run-up recently, there is still plenty of room to go. Investors willing to do the work and look where others haven't should contemplate buying shares of this under-the-radar stock.