You would think that a stock that has tripled this year would attract a lot of attention, but with The Joint Corp. (JYNT -1.43%), this doesn't seem to be the case.
The nationwide franchisor and operator of low-cost chiropractic clinics has a market capitalization of just $1.2 billion, making it a small-cap stock, and explaining why it probably goes unnoticed. But its monster returns have come as a result of remarkable execution over the past few years, including pandemic-laden 2020.
Here's why The Joint Corp. should be a stock on your watch list.
Past history of success
From 2015 through 2020, revenue increased at a compound annual rate of 33.5%, while net income has soared from an $8.8 million loss to a $13.2 million profit during the same time. It's no surprise, given that the company now has 600 total clinics in its system, nearly double the count at the end of 2015.
The Joint Corp.'s value proposition is the key to its mind-boggling success. Compared to the traditional chiropractic office that most people are probably familiar with, The Joint Corp.'s clinics focus on fast, simple, and effective back adjustments. There's no need for insurance because it's all cash-based.
The average cost for a visit is $29, and patients can be in and out in as little as five minutes without having to even schedule an appointment. Expenses are kept low because there's no pricey equipment or administrative staff, and since the licensed chiropractors at each location are able to see so many customers each day, unit economics are very impressive. In 2020, the average clinic generated $489,000 in sales compared to a total build-out cost of $276,000.
The business does a phenomenal job attracting those who are unfamiliar with chiropractic care. Clinics treated 584,000 new patients in 2020, and 27% of them had never seen a chiropractor before. Google searches for "chiropractor near me" are close to their highest level since the data started being tracked in 2004, showcasing the public's heightened interest in this form of wellness.
A bright future ahead
Even with this tremendous success, the future outlook still looks extremely promising.
The Joint Corp. is attacking a highly fragmented $16 billion domestic chiropractic market. Approximately 3% of the industry consists of multi-unit chains, with the balance being independent offices. As it stands today, the business controls just 1% of the overall market, leaving plenty of room for outsize growth in the years ahead.
On the most recent earnings call, management reiterated its target of having 1,000 clinics open by the end of 2023. And even more jaw-dropping is the company's belief that the U.S. has the potential to eventually support 1,800 clinics, a threefold increase from the current footprint.
Usually, the mention of a large addressable market like this is nothing more than a marketing ploy to drum up investor interest, but The Joint Corp.'s performance and execution prove that it is certainly a possibility. Same-store sales (or comps) for locations open longer than 13 months soared 21% in Q1 2021 compared to the same period last year. And even during 2020, a year characterized by the coronavirus pandemic's disruptions, comps rose by a healthy 9%. This would be the envy of most other retail companies in normal times.
Alongside all the positive fundamental aspects of the business, there is one negative that investors have to deal with: Shares look expensive. A forward price-to-earnings ratio exceeding 200 is not cheap by any measure, and it's the highest it's ever been for the stock.
Additionally, the recent inclusion of The Joint Corp. in the S&P 600 immediately bumped the stock up 12% in pre-market trading, as it can now be included in funds that track the index.
Regardless of the stock's massive run-up this year, investors should follow this one closely. If there's any pullback, don't hesitate to buy some shares.