One hot and one cold disruptor could be big long-term winners at their current prices.
There are industries that come and go when it comes to investor fancy. The one thing that appears timeless is the appeal of disruptors. Find a company shaking up a stodgy industry, and there’s money to be made if you’re right and, ideally, early.
Some of the disruptors I think offer long-term potential include Chipotle Mexican Grill (CMG -0.65%) and Teladoc Health (TDOC 10.76%). Let’s take a closer look at both of these companies that reinvented their stodgy industries. There is still upside to be had at today’s price points for entirely different reasons.
1. Chipotle Mexican Grill
There was a time when there was practically nothing between fast food and casual dining to satisfy the hungry. Chipotle championed fast-casual, a format that delivered casual dining eats with the convenience of fast food. Sure, chains including Subway and Panda Express had the assembly line concept down before Chipotle. Others like Panera take a little more time on the prep but still put out table-service-quality eats. Chipotle is the one that put it all together with a “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 store count in North America alone. It’s also not afraid to continue innovating. When it saw digital sales take off on this side of the pandemic crisis it made it easier to utilize a second assembly line in the back of the restaurant to piece together the growing number of takeout orders without inconveniencing walk-in traffic like other concepts are doing. Drive-thru lanes have been around in the restaurant industry since the 1940s, but Chipotle is now incorporating its cleverly titled Chipotlanes to most of its new openings to make it easier for customers and third-party delivery app drivers to get their food.
Image source: Getty Images.
As big as Chipotle has grown over the years, it keeps finding ways to deliver stellar returns. The stock is up 57% over the past year, and has more than quadrupled over the last five years. Double-digit revenue gains continue, including three consecutive quarters of 14% top-line growth. Expansion stacked on top of healthy comps can keep those gains coming. The story gets even better on the bottom line with at least 36% growth in earnings for each of the last three years.
Chipotle has tried and failed to grow out sister concepts, but reality has shown that it doesn’t need a second act. The namesake chain is all it needs. Chipotle stunned the market with its success, and the imitators have followed. Don’t let this week’s upcoming 50-for-1 stock split distract you. This is a top-shelf restaurant stock and disruptor that continues to raise the bar-bacoa.
2. Teladoc
Let’s go from a disruptor that everyone loves in Chipotle to one that investors are steering clear of: Teladoc. The pioneer of telehealth has a proven platform where folks can check in with 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. The shares are now down a stunning 97% since peaking in early 2021. Put another way, this would be a 30-bagger if it got even close to its earlier all-time high.
The good news is that Teladoc has a healthy 91.8 million virtual care members on its platform. That’s about it for the good news. Revenue growth has decelerated sharply for 12 consecutive quarters, a run that began following a 151% year-over-year increase on the top line and has fallen all the way to a 3% uptick in its latest report.
Usage is going the wrong way. Year-over-year visits have declined the past few quarters despite the gradual rise in its membership base. Losses continue, but it is generating positive and growing free cash flow and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
There is no denying that this is a risky situation. Even though Teladoc’s balance sheet is flush with cash to ride things out in the near term, it needs to 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. Its longtime CEO stepped down in April, and an outsider was brought in to take over earlier this month. The current diagnosis may not be encouraging, but with the suppressed share price and large membership base, the upside is high whether Teladoc figures things out or is acquired by an opportunistic player at a reasonable premium.
Rick Munarriz has positions in Teladoc Health. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Teladoc Health. The Motley Fool has a disclosure policy.