There are sectors that come and go when it comes to investors’ fancy. The only thing that seems timeless is the appeal of disruptors. Find a company that’s disrupting a struggling industry, and you can make money 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 these two companies that have reinvented their heavy industries. There is still upside potential at current price levels for entirely 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 offered casual dining with the convenience of fast food. Of course, chains like Subway and Panda Express had the assembly line concept before Chipotle. Others, like Panera, take a little longer to prepare but still offer table service quality food. Chipotle is the one that has 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 number of stores in North America alone. She is also not afraid to continue to innovate. When he saw digital sales take off this side of the pandemic crisis, it was easier to use a second assembly line in the back of the restaurant to bring together the growing number of takeout orders without hindering the walk-in traffic as other concepts do. . Drive-thru lanes have existed in the restaurant industry since the 1940s, but Chipotle is now integrating its cleverly titled Chipotlanes into most of its new openings to allow customers and third-party delivery app drivers to get their food more easily.
As big as Chipotle has grown over the years, it continues to find ways to generate exceptional returns. The stock is up 57% over the past year and has more than quadrupled over the past five years. Double-digit revenue increases continue, with three consecutive quarters of Revenue growth of 14%. Expansion stacked on healthy comps can keep these gains coming. The picture is still improving in terms of results, with profit growth of at least 36% for each of the last three years.
Chipotle has tried and failed to develop sister concepts, but reality has shown that it doesn’t need a second act. The namesake channel is all it needs to be. Chipotle stunned the market with its success and imitators followed. Don’t get distracted by this week’s upcoming 50-for-1 stock split. It’s a top of the range restaurant stock and a disruptor who continues to raise the bar.
2. Teladoc
Let’s move from a disruptor that everyone loves in Chipotle to one that investors avoid: Teladoc. The telehealth pioneer has a proven platform where people can consult a specialist doctor online for a growing number of problems and conditions. We’re just struggling to connect with patients and the market right now.
The stock hit a new eight-year low late last week. Shares are now down 97% since their peak in early 2021. In other words, it would be a 30-bagger if it got any closer to its previous all-time high.
The good news is that Teladoc has 91.8 million virtual care members on its platform. That’s all for the good news. Revenue growth has slowed sharply for 12 consecutive quarters, a trend that began after a 151% year-over-year increase in revenue and fell to a 3% rise in its latest report.
The usage is going in the wrong direction. Year-over-year visits have declined in recent quarters despite the gradual increase in membership. The losses continue, but they generate 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 weather the situation in the short term, it needs to start growing again. Telemedicine and telehealth make too much sense to fail, and new companies are gaining market share at Teladoc’s expense. A saving grace here might be a change at the top. Its longtime CEO resigned in April and an outsider was named to take over earlier this month. The current diagnosis may not be encouraging, but with the falling stock price and large membership base, the upside potential is high whether Teladoc finds out about the situation or is bought out by an opportunistic player at a reasonable premium.
Should you invest $1,000 in Chipotle Mexican Grill right now?
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Rick Munarriz holds positions at Teladoc Health. The Motley Fool posts 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
