The small-cap franchisor of chiropractic clinics recently reported another fantastic quarter and is seeing its growth accelerate as restrictions ease and the U.S. economy reopens. Its consumer-friendly and low-cost approach to treating back pain has made shareholders rich over the years. Can the business and the stock keep it up?
Another great quarter for a great company
During the first quarter, The Joint Corp.'s revenue jumped 29% year over year, while operating income soared 162%. This is after each of the previous two quarters registered sales gains of greater than 20%, even in the midst of the coronavirus pandemic. The company now has 600 clinics in its system, a figure that has risen rapidly over the past several years.
What makes The Joint Corp. different from traditional chiropractic offices is that it does away with the insurance-based model. Instead, the company offers basic and effective back adjustments to patients using a membership structure with no appointments needed, all at a lower price point.
It has worked tremendously well. Systemwide sales in 2010 were a meager $1.3 million. Last year, in 2020, they reached a whopping $260 million. Management sees a massive opportunity for The Joint Corp. to continue gaining market share in the fragmented $16 billion domestic chiropractic industry.
Based on CEO Peter Holt's comments regarding the quarter, I think it's safe to say that a slowdown isn't happening anytime soon:
We continue to strive toward our goal of 1,000 open clinics by the end of 2023, which we expect to be a tipping point. At scale of this magnitude, as proven repeatedly by many franchise systems that are now household names, we can more easily and effectively leverage our brand, marketing and operations foundation, which we expect to drive growth at an even faster pace.
Even more eye-opening is the fact that management sees the potential for 1,800 total clinics in the U.S. over the long term. It is extremely confident that consumer interest in The Joint Corp.'s services will only grow over time. After all, 27% of new patients in 2020 had never been to a chiropractor before. The company also cited a survey that found that 50% of Americans don't even know what the word "chiropractic" means.
The strong first-quarter numbers led management to slightly raise full-year 2021 guidance for revenue and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), demonstrating its belief in the sustainability of this healthcare company's momentum.
The takeaway for investors
Some of the best investment opportunities come from areas of the stock market that are mostly overlooked by others. The Joint Corp. is a perfect example. Not only is this because of its small size, but also because it doesn't screen well based on traditional valuation metrics.
The stock currently trades at a forward price-to-earnings (P/E) ratio of 143, which at first glance does not look cheap. But investors who take the time to understand the company and its long-term growth trajectory will realize that as earnings continue to expand significantly, with the continuation of the plans for new clinics, The Joint Corp. actually looks like a very attractive investment today.