The Joint (NAS:JYNT) — mrkt cap $205mm; Price $13.93; trailing P/E 25
PASS. The Joint is a chiropractic care chain. It generates about $100mm per year in revenue and has about 830 stores in USA. JYNT offers subscription/package deals for minor adjustments and competes against the fragmented 40k plus chiropractic offices. Although management is competent, a chiropractic business that relies on recurring revenue from clients seems tenuous. One would imagine that chiropractic care inherently is more of a one-time transaction as opposed to a habitual one. Leaving aside the question of whether chiropractic is a legitimate form of alternative medicine, the misalignment of incentives between the chiropractor and the client gives us pause with JYNT.
TLYS (NYS:TLYS) – mrkt cap $188mm; Price $6.3; trailing P/E
PASS. What initially drew us to this west coast-oriented specialty retailer was their inclination to pay a special dividend. Our view is that a periodic special dividend is much more desirable than what is frequently a procyclical buyback policy. We spoke to IR/CFO this week and while we think highly of the management team and their capital allocation, we will wait until their merchandising strategy is a bit clearer before greenlighting for a deeper dive. They have recently added leadership help in this area so we are a eager to observe how their merchandising evolves.
Playtech (LON:PTEC) – mrkt cap £1.8B; Price £608; trailing P/E 29
PASS. Playtech is a 24-year old B2B company that supplies software solutions to online gambling companies (aka B2Cs, aka operators). Most operators are not capable of maintaining an in-house software development team that can produce solutions that meet customer needs while also satisfying extensive regulatory requirements. The company has grown to a dominant position through in-house growth capex and sensible acquisition strategy. They also acquired B2C operator Snaitech in 2018 under the strategy of “diversification” which we generally view as an inadequate justification for an acquisition. ~30% of PTEC’s B2B revenues are from unregulated markets and there is always the risk of operational deleverage if those revenues fall off. Although there are interesting trends in the online gaming space we will continue searching for a better positioned name.