Digital dentistry operation SmileDirectClub (SDC) hasn’t exactly been in the greatest shape recently. The company is currently pursuing lawsuits against NBCUniversal, over what it considered “defamatory” information released during an NBC Nightly News investigation. However, that’s just part of what’s going on.
The company recently released its latest earnings report, and it’s not exactly packed with great news either. As a result of all these factors, I’m bearish on SmileDirectClub. (See Analysts’ Top Stocks on TipRanks)
Looking at SmileDirectClub’s year-to-date stock chart shows a company that’s in a downward spiral. While the company started the year out in a reasonably solid position, it didn’t take long for it to deteriorate.
A nice upward jolt in late January saw the company’s share prices increase nearly 50% in the space of about a week. Unfortunately, that spike didn’t last. Almost a day after the jolt concluded, the company started a slow slide downward.
Several retracements kicked in, a few plateaus appeared, and even some attempts at a rally emerged every so often. However, the overall trajectory has been clearly downward as the company lost nearly two thirds of its overall value between last January and today. (See SmileDirectClub stock charts on TipRanks)
The company’s latest news isn’t a great win either. The latest financial report features a quarterly loss of $0.23 per share. Consensus estimates were calling for a loss of just $0.15 per share. Bad enough by itself, but it gets worse. At this time last year, SmileDirectClub posted a loss of $0.11 per share.
Revenue proved no better. The company posted revenue of $137.68 million for the quarter, which missed the consensus by nearly a full quarter, 24.23%. It’s also significantly lower than revenue seen this time last year, as the company had brought in $156.46 million.
A Plunge from Disaster
The biggest problem with SmileDirectClub is the comparisons. No one likes to see a company do worse than the previous year. It’s the wrong direction to go. Granted, it happens as no company can grow forever. However, in this case, it’s a particular problem. Why? Look at what last year was.
Last year, 2020, was the worst of the pandemic. This was when lockdowns were still in place, and even in places where they were removed, there were still plenty of restrictions.
This was a disaster for brick-and-mortar retail operations of all sorts. Medical operations were having their share of troubles too, often having to obey almost insane government strictures. Now, many of those issues are out of the picture. But for SmileDirectClub, it’s having a worse year now than it did back then!
That’s the exact opposite of how things should be going. It’s also a likely sign of much larger problems at work. When a company is actually doing worse now than it was during the depths of the pandemic, something is seriously amiss.
David Katzman, the company’s chairman and CEO, noted that the third-quarter results were due to, “…macroeconomic headwinds that are influencing the spending of our core demographic.”
To give the company some credit, it’s adjusting its marketing to reflect these “headwinds.” SmileDirectClub is targeting higher-income demographics with new programs. It’s also modifying its current marketing to focus on support.
Wall Street’s Take
Turning to Wall Street, SmileDirectClub has a Hold consensus rating, based on one Buy, seven Holds, and three Sells assigned in the past three months. The average SmileDirectClub price target of $5.80 implies 32.1% upside potential.
Analyst price targets range from a low of $2.00 per share to a high of $11.00 per share.
Concluding Views
I am happy to see that SmileDirectClub is modifying its marketing efforts to reflect conditions on the ground. It sure beats a company that sticks to the “status quo” while losing ground at terrific rates. However, when a company loses ground between a pandemic year and a non-pandemic year, it’s too bad of a sign to just quietly ignore.
SmileDirectClub is working to turn itself around. That’s good news, but it’s so far in the hole that buying in now sounds like a death sentence. I’m bearish on SmileDirectClub as a result. Expanding losses during improving conditions is a very, very bad sign.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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