Teledentistry company SmileDirectClub, Inc. (SDC) designs and manufactures dental equipment in the United States. The oral care company’s stock has a very high short interest—appproximately 32.8% of its total floating shares have been sold short. However, SDC’s stock price has declined 64.7% year-to-date and 30.4% over the past month. Furthermore, the meme stock candidate is currently trading 73.8% below its 52-week high of $16.08, indicating short-term bearishness.
SDC’s disappointing third-quarter results as surging COVID-19 cases led most people to postpone elective healthcare services, including teeth alignment, have rattled investors.
In addition, the Nashville-based teledentistry company lowered its fourth-quarter guidance because it expects the macroeconomic headwinds to persist. This could further reinforce negative sentiment in the stock.
Here is what could influence SDC’s performance in the near term:
Business Headwinds
Although COVID-19 cases are trending lower in the United States, fears surrounding the pandemic have caused many to cancel non-emergency and elective medical procedures. This has severely impacted SDC’s revenue-generating prospects from orthodontic treatment. Furthermore, the company’s CFO, Kyle Wailes, stated that Apple, Inc.’s (AAPL) security changes, introduced earlier this year, have presented “significant challenges” to SDC. Also, macroeconomic headwinds, including inflation and constrained discretionary spending, could continue to affect the company’s core business.
Dismal Growth Potential
Analysts expect SDC’s revenues to decline 22.2% in the current quarter (ending December 2021) and 17.6% in the next quarter (ending March 2022). Also, it is estimated to grow by only 0.7% in the current year. The company’s EPS is expected to decrease 88.9% in the current quarter and 8.5% in 2021. And SDC’s EPS is expected to remain negative in its fiscal year 2022.
Grim Financials
For the third quarter, ended September 30, 2021, SDC’s revenue declined 18.3% year-over-year to $137.68 million. Its gross profit fell 17.2% from its year-ago value to $98.27 million. SDC incurred a $89.38 million net loss and an operating loss of $85.04 million. Also, its adjusted EBITDA was negative $54.02 million, compared to a $3.02 million adjusted EBITDA. .
The company’s trailing-12-month net income and levered free cash flow margins are negative 11.9% and 17.7% respectively. Its EBITDA margin, ROA, and ROE came in at a negative 18.8%, 9.4%, and 32.6%, respectively. And the company’s trailing-12-month cash from operations stood at negative $112.98 million.
POWR Ratings Reflect Bleak Prospects
SDC has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SDC has a D grade for Stability. This is reflected in the stock’s relatively high 2.36 beta.
Also, it has a D grade for Quality. The stock’s negative profit margin is consistent with the grade.
In addition, it has a D Momentum Grade, which is in sync with its 30.4% share price decline over the past month.
Beyond the grades I have highlighted above, we have also rated SDC for Growth, Value, and Sentiment. Get all SDC ratings here.
SDC is ranked #145 of 174 stocks in the D-rated Medical – Devices & Equipment industry.
Click here to checkout our Healthcare Sector Report for 2021
Bottom Line
A worse-than-expected third-quarter performance has caused SDC’s shares to retreat in price recently. Furthermore, a lowered revenue guidance for the fourth quarter as the company continues to battle macroeconomic headwinds could discourage investors. And the teledentistry company’s bleak growth prospects could cause its shares to take a hit in the coming months. Therefore, we think the stock is best avoided now.
How Does SmileDirectClub (SDC) Stack Up Against its Peers?
While SDC has an overall D rating, one might want to consider the following industry peers having an overall A (Strong Buy) grade: Fonar Corporation (FONR), Electromed, Inc. (ELMD), and Natus Medical Incorporated (NTUS).
SDC shares fell $0.02 (-0.48%) in premarket trading Monday. Year-to-date, SDC has declined -64.74%, versus a 26.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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