There are industries that come and go when it comes to investors’ imaginations. The one thing that seems timeless is the appeal of disruptors. Find a company that’s shaking up a stodgy industry, and there’s money to be made if you’re right and, ideally, early.
Some of the disruptors that I believe offer long-term potential include: Chipotle Mexican Grill (NYSE: CMG) And Teladoc Health (NYSE: TDOC). Let’s take a closer look at both companies that reinvented their stodgy industries. There is still profit to be made at current prices for completely different reasons.
1. Chipotle Mexican Grill
There was a time when there was virtually nothing between fast food and casual dining to satisfy the hungry. Chipotle championed fast-casual, a format that allowed casual dining with the convenience of fast food. Certainly, chains like Subway and Panda Express had the conveyor belt concept before Chipotle. Others, like Panera, take a little more time to prepare, but still put out table-quality food. Chipotle is the one that put it all together with the “food with integrity” mantra that resonates with its growing fan base.
Chipotle is huge now. There are now 3,479 locations, but Chipotle expects to more than double that number of stores in North America alone. It is also not afraid to keep innovating. As digital sales took off this side of the pandemic crisis, it became easier to use a second assembly line in the back of the restaurant to merge the growing number of takeout orders without hampering walk-in traffic, as other concepts do. . Drive-thru lanes have been around in the restaurant industry since the 1940s, but Chipotle is now integrating the cleverly titled Chipotlanes into most of its new openings to make it easier for customers and drivers of third-party delivery apps to get their food.
No matter how big Chipotle has become over the years, it continues to find ways to generate great returns. The stock is up 57% in the past year and has more than quadrupled in the past five years. Double-digit revenue growth continues, including three consecutive quarters of 14% revenue growth. Expansion on top of healthy COMPs can maintain those gains. The story gets even better on the bottom line, with earnings growth of at least 36% in each of the past three years.
Chipotle has tried and failed to grow sister concepts, but reality has shown that no second act is necessary. The eponymous chain is all it needs. Chipotle stunned the market with its success and imitators followed suit. Don’t be distracted by this week’s upcoming 50-for-1 stock split. This is a top-tier restaurant stock and a disruptor that continues to raise bar-bacoa.
2. Teladoc
Let’s go from a disruptor that everyone in Chipotle loves to a disruptor that investors are staying away from: Teladoc. The telehealth pioneer has a proven platform that allows people to contact a medical specialist online for a growing number of concerns and conditions. It’s just struggling to connect with patients and the market right now.
The stock hit another eight-year low late last week. Shares are now down a whopping 97% since peaking in early 2021. In other words, this would be a 30-bagger if it even came close to its previous all-time high.
The good news is that Teladoc has a whopping 91.8 million virtual care members on its platform. That’s it for the good news. Revenue growth has slowed sharply for twelve consecutive quarters, a streak that started after a 151% year-over-year revenue increase and dropped all the way to a 3% increase in the latest report.
The usage is going in the wrong direction. The number of annual visits has decreased in recent quarters, despite the gradual increase in membership. The losses remain, but it generates positive and growing free cash flow and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
There’s no denying that this is a risky situation. Although Teladoc’s balance sheet contains enough cash to survive in the short term, the balance sheet must start growing again. Telemedicine and telehealth make too much sense to fail, and newer companies are gaining market share at Teladoc’s expense. A saving grace here could be a change at the top. The longtime CEO stepped down in April and earlier this month an outsider was brought in to take over. The current diagnosis may not be encouraging, but with the low stock price and large membership base, the upside is big whether Teladoc finds out or is acquired at a reasonable premium by an opportunistic player.
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Rick Munarriz holds positions at Teladoc Health. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Teladoc Health. The Motley Fool has a disclosure policy.
2 Disruptive Stocks to Buy and Hold for Big Long-Term Potential was originally published by The Motley Fool
