Studying long hours and doing little exercise had me suffering back pains over the past year. I was told to visit a chiropractor since many of my friends had faced the same issue. I was hesitant to try one because I was not sure if their practice is legitimately helpful. After hours of watching YouTube videos and reading good reviews, I decided it was time for me to visit a chiropractor. I was amazed by the results. Chiropractors, however, are not cheap.
A common reason people hesitate visiting a chiropractor is the cost. Fees per chiropractic session average $77 for a general vertebrae adjustment, according to a recent survey in Chiropractic Economics magazine. This is by no means a small amount, considering that for a full recovery may require several visits.
I just want to make a note here. In recent decades, chiropractic has gained more legitimacy and greater acceptance among conventional physicians and health plans in the United States. However, there is no substantial evidence that chiropractic is sufficient for the treatment of any medical condition, except possibly for certain kinds of back pain. In this article, I will not touch or judge the legitimacy of the practice but will focus on the business side instead.
Today I want to take a look at The Joint Corp. (NASDAQ:JYNT). The company is reinventing chiropractic care via a business model that makes open-ended treatment affordable, convenient, and approachable. The Joint Corp. has more than 450 clinics open across 32 states and is actively looking for new investors and franchise owners.
The point of this article is to:
The Joint is serving patients seeking pain relief and ongoing health and wellness in an open bay setting. No appointment is required, and space is shared with other patients, which cuts the costs down dramatically. Traditional clinics operate in restricted service hours in medical Centers/Offices. These clinics attract, on average, 600 patients per month.
The Joint Group is turning the traditional model around. The company's services can be found in retail locations (e.g., they are planning on opening in more airports), which are open at nights & on the weekends. Additionally, the no-appointment needed requirement along with the shared spaces, offer a more patient-friendly environment, in comparison to a more serious-clinical one. This unique approach is practical, confirmed by real results. The Joint's clinics attract on average 1,000+ patients per month, and the price point has come down to ~$27/visit.
According to the Bureau of Labour Statistics, the average starting salary for a practitioner is $30K - $40K. The Joint's business model may sound relaxed, but their salaries aren't. Management understands that without appointments, it is hard for practitioners to handle more workload, as well as further responsibility, which requires staying focused in a profession with no margin of error. The hard work required is reflected in their salaries, which start on average at $65K - $75K plus bonus potential.
Image source: Franchisegator
The days of managing a business without sufficient support are over. Traditional clinics have difficulty attracting new patients and face insurance hassles, which cause a slow payment cycle. The Joint utilizes proprietary CRM and POS software, which allows the collection and processing of the patients' data. This way they maximize their advertising goals, target group's accuracy, and total visits potential. Proper software use requires less administration and allows for higher patient focus. Additionally, since there is no affiliation with insurance, patients pay on the spot or online, which is a considerable advantage to the company's cash flow.
The Joint's business model has been incredibly successful. Revenue growth has been unstoppable. As the graph illustrates below, the latest Q2's revenue was 62% higher than in the same quarter two years ago. Moreover, the firm has dramatically increased its profitability by taking advantage of the franchising model. Licenses for opening a Joint are also in high demand. Non-company operated clinics have more than doubled in the past seven years. Source: Presentation
The licensing model has been improving the margins for the Joint. To open a Joint requires an approximate investment of $276K, which includes a $150K initial build-out cost. The franchisee then pays 7% royalty on gross sales and an additional $450/month in software fees. The company estimates that the franchisee assumes breakeven at $25K monthly total sales. The licenses are sold at ~40K, prior to year one sales. The model's success and the margin expansion is depicted in the graph below.
The stock's price has been flying higher and higher for the past three years. The stock was trading at $2 in 2016's December. At the time of writing the stock is priced at ~$17. The growth has been exponential, and management has proven the doubters wrong. Source: Yahoo! Finance
But what about the multiples? The company is currently trading at 7.3 times sales. Additionally, the trailing PE is at 135, which implies an extraordinary valuation for a company in an unusual sector.
However, both top and bottom-line growth cannot be ignored. The company's earnings are growing at such a rapid rate that future earnings estimate a much lower 50 times forward earnings valuation. Sure, the current multiples look expensive at first glance, but with more licenses sold and royalties coming in, they may not be that rich, future-wise. After all, the Joint has proven that it can attract that kind of sales volume, as well as a robust set of management skills. The royalty model will also increase cash flow, with minimal expenses for the company. That should increase profitability and net earnings even further.
Whether you believe in chiropractic or not, it is hard to deny that the business model of the Joint is genius. Attracting 6.0M patient visits in 2018, 26% of which were new to chiropractic, shows how effective and consumable their strategy of open-clinics has been. The stock is not cheap by any means, but with margins getting better and more franchises on prime locations on the horizon, earnings are poised to grow. The benefit of receiving royalties, while the franchisee pays all the costs upfront is a phenomenal model, as I have previously discussed on my Shake Shack article. I will not be currently buying stock, as I believe I may find a better entry price shortly. I am, however, impressed by the Joint's business model and will continuously be looking into it.
This article was written by
I hold a BSc in Banking and Finance. Here, on Seeking Alpha, I cover a variety of growth stocks and income stocks, including identifying those with the highest expected return potential, and a solid margin of safety.
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