Why Did SmileDirectClub Go Up?

Metal-and-wire braces are the traditional way to straighten crooked teeth, but clear aligners have emerged in recent years as a strong alternative. These clear plastic trays are molded for each individual’s mouth and can be taken in and out for cleaning. The increased demand for aligners has fueled the growth of SmileDirectClub (NASDAQ:SDC).

The teledentistry company’s stock traded as high as $18.68 after its IPO in September 2019. But it’s been downhill since then, as SDC dropped all the way to a low of $0.30 per share earlier in 2023. But things have turned around over the past month, with renewed interest in SDC driving the stock up over 141%.

The buzz around the stock was partially due to the announcement that SmileDirectClub plans to open 18 more retail locations, called SmileShops, in the US. Another boost came off the news that SmileDirectClub will leverage AI in its SmileMaker software, a platform that will create more accurate 3D models for the company’s aligners.

SmileDirectClub also increased its sales from last quarter, but total revenue is still down year-over-year. Some analysts believe that the company got a revenue boost from the 2020-21 lockdown period when patients increasingly turned to teledentistry. Many bears believe that SDC’s decreased sales are due to patients returning to brick-and-mortar orthodontics offices.

So will SmileDirectClub stock continue to go up?

SmileDirectClub Has Grown Fast

Beyond the primary teledentistry and aligner services, SmileDirectClub offers its own line of products that include whiteners, retainers, water flossers, toothpaste, mints, and even lip balm.

The company’s 128 SmileShops are distributed in major cities all over the US, and they offer an alternative for patients who prefer face-to-face interactions. They also provide a location to sell SmileDirectClub’s other products and deliver customer service. Beyond the SmileShops, the company also has partnerships with over 1,000+ dentists across the country.

SDC also has a long-running partnership with CVS Pharmacies that puts the the company’s SmileShops and products in select CVS stores.

The company has continued to grow rapidly and now has over 6,000 employees and a market capitalization of around $272 million.

How SmileDirectClub Makes Money

The company’s revenue driver is clear aligners for teeth straightening. Customers meet virtually with a licensed orthodontist who will evaluate the patient’s individual situation. Then the company makes impressions of the patient’s teeth and creates molds for each unique aligner using 3D printing technology.

Though clear aligners have become increasingly popular, some orthodontists have criticized the company’s teledentistry model. They believe that SmileDirectClub and its competitors don’t offer services that are up to industry standards. So far, there’s no proof to back up those claims.

But SmileDirect has faced a number of other controversies. A CBS news story in 2020 alleged that the company’s marketing and documentation was misleading to customers. It also claimed that SDC’s orthodontists recommended treatment plans when no correction was needed. These allegations led to a major overhaul of SmileDirectClub’s treatment practices.

A NBC News story that same year highlighted a survey of SmileDirectClub customers. The former clients claimed that SDC’s aligners caused pain and serious oral issues in some cases. The story caused the company to sue NBC, claiming that the piece contained as many as 40 false statements. NBC disavowed the lawsuit.

Revenues Up, Losses Up

The company’s first-quarter total revenue of $120 million was a 38.4% increase from total revenue in the last quarter of 2022. Despite the rapid increase, revenue was still down 20.9% from total revenue of $151.6 million in the first quarter of 2022.

SmileDirectClub’s net loss of $66 million was a 5.7% decrease from the $70 million net loss last quarter. It was also a 9.6% decrease from the net loss of $73 million in 2022. Diluted EPS of $(0.16) improved from the diluted EPS loss of $(0.19) in the first quarter of 2022.

The company increased unique aligner shipments from 41,462 units shipped last quarter to 59,645 in the first quarter of 2023, a 43.9% increase. The increase in revenue and shipments from last quarter caused management to reaffirm their revenue estimates for the rest of the year.

The company has a P/S ratio of around 0.6, a positive sign for investors that SmileDirectClub may be undervalued compared to its competitors. The industry P/S value averages between 2 and 3.

Analysts’ Ratings for SmileDirectClub

Despite a number of positive indicators for the company, analysts are still hesitant to rate SDC stock as a buy. Out of the 8 analysts who’ve given ratings on the stock, all 8 agree that SDC is a hold. The consensus is that shares will trade even or perhaps dip lower, with the median forecast predicting SDC stock will drop to $0.60 over the next 52 weeks.

The most bullish forecast predicts the stock will rise another 45% to $1 over the next 12 months. The most bearish analyst sees the stock dropping to $0.40 over the next year, which would be a 42% decline.

Is SmileDirectClub Stock a Buy?

SmileDirectClub is a teledentistry and oral care company that makes clear aligners for tooth straightening. The company’s model and products have come under fire over the past few years, and some analysts believe that the revenue the company enjoyed during the 2020-21 era won’t be coming back.

But sales and shipments have turned around for the company from last quarter to the first quarter of 2023. The news that the company is adding more retail locations and expanding its software offering to include AI have increased the buzz around SDC. The P/S value is another positive indicator that the stock is undervalued.

The company has faced serious issues, but initial indications are that SmileDirectClub may be turning the corner. But given the company’s product concerns, year-over-year revenue decline, and unprofitability, it’s understandable why analysts are reluctant to endorse SDC.

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