One of the advantages individual investors have compared to their institutional peers is the ability to search the hidden corners of the market for investment opportunities. Information is now available to anyone with an internet connection, so if you're willing to put in the time, you might just find something interesting.
While popular tech stocks garner much of Wall Street's attention, there is a fantastic small-cap stock that has absolutely trounced the market, up almost fourfold in 2021. And the business is booming.
Is The Joint Corp. (JYNT -1.55%) the best stock to buy under $110?
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Riding the wellness craze
The company's business model is simple and straightforward. The Joint Corp. is an operator and franchisor of low-cost chiropractic clinics in the U.S. The average cost for a session is $29, far less than a traditional chiropractor that most people are familiar with.
This is because the business only provides basic back adjustments, attracting people who are new to chiropractic care. And it does away with the expensive equipment and administrative staff. There is no need for insurance or an appointment.
As of June 30, The Joint Corp. had 633 clinics in its system, which is more than double what it had at the end of 2015. Revenue in the most recent quarter soared 61%, while same-store sales jumped 53%. Operating income of $2 million in the three-month period is a world away from the $259,000 it was in Q2 2020. These are remarkable numbers, and they highlight the public's growing interest in non-invasive health and wellness.
Management was so impressed with the quarter that they raised their forecast for sales, profit, and store openings for 2021. It appears The Joint Corp. is well on its way to achieving its target of 1,000 clinics by year-end 2023. President and CEO Peter Holt said on the significance of this milestone, "We continue to march toward our goal of 1,000 open clinics by the end of 2023, which we expect to be a tipping point for national brand recognition to drive growth at an even faster pace."
This healthcare company operates in a highly-fragmented, $18 billion domestic chiropractic market. The chain's systemwide sales of $260 million in 2020 accounted for just over 1% of the entire industry, leaving plenty of room for expansion in the years to come.
But consider the valuation
As a result of outstanding execution to open more clinics and continue increasing sales, it's no surprise that this under-the-radar stock has experienced such a massive price run-up. I first looked at The Joint Corp. in January of this year and ultimately decided that the stock's performance had exceeded the underlying fundamentals. I couldn't have been more wrong.
Not only did I underestimate the company's ability to bounce back from the pandemic, I underestimated how much the market would appreciate the fundamentals. Consequently, I missed out on a huge winner.
With that being said, I'm still on the sidelines here. Again, the execution speaks for itself, and the long-term outlook couldn't be better. But I think investors who purchase shares now are just chasing returns at this point. Not to mention, the stock sells at a price-to-sales ratio of 24, the highest it's ever been; it's even higher than electric-vehicle maker Tesla.
The Joint Corp. is certainly a red-hot stock. I think the best move right now is to add it to your watch list and wait for a meaningful pullback.
