SmileDirectClub vs. Dentsply Sirona: Which Dental Stock Is a Better Investment?

The global middle-class is getting larger every year.  It's forecast that the global middle-class will reach 5.3 billion people by 2030, up from an estimated 2 billion in 2020.

With this growth, the global dental market will benefit. This market is expected to reach $37.16 billion by 2025, from $30.05 billion in 2019.

With this in mind, today I’ll take a look at two dental stocks, SmileDirectClub (SDC) and Dentsply Sirona (XRAY), to see which is currently the better investment. 

SmileDirectClub is popular on Reddit

SmileDirectClub is an oral-care company that offers clear aligner therapy treatments. Valued at a market cap of $2.23 billion, SDC manages the entire process from aligner manufacturing to marketing, treatment, and monitoring. It has a network of 250 state-licensed general dentists and licensed orthodontists.

SDC stock is trending on social media platform Reddit but it is down 14.8% in the last month and declined by 71% from record highs. SmileDirectClub sales rose by 63% year over year in Q2 to $174 million but were still 24% lower compared to sales in the same period in 2019.

Analysts tracking the stock forecast sales to rise by 15.6% in 2021 to $759.25 million and by 20.4% to $914 million next year. But it also estimates to report a net loss per share of $0.68 in 2021 and $0.3 in 2022.

SmileDirectClub’s forward price to sales multiple of less than 3x is quite reasonable given the growth forecasts. Wall Street expects SDC stock to touch $6.95 in the next 12-months which is 22% above the current trading price.

Dentsply Sirona has a market cap of over $13 billion

Dentsply Sirona is much larger compared to SDC and is valued at a market cap of $13 billion. It designs, develops, manufactures, and sells multiple dental products and technologies for the professional dental market worldwide. It has two primary business segments that include Technologies & Equipment and Consumables.

The company’s sales fell from $4 billion in 2019 to $3.3 billion in 2020. Its operating income also fell from $441.6 million to $222 million in this period. However, while COVID-19 impacted the financials of Dentsply last year, analysts expect sales to rise by 28.4% to $4.29 billion in 2021 and by 5.2% to $4.51 billion in 2022. This will enable Dentsply to increase its earnings at an annual rate of 26.35% in the next five years.

The stock is trading at a forward price to earnings multiple of 20.7x and a price to sales multiple of 3.1 which is similar to SDC. Wall Street also expects Dentsply stock to touch $72.73 in the next year, which is 23% higher than its current price.

The company's consistent profits enabled the management team to increase quarterly dividends per share by 10% to $0.11 in May, indicating a yield of 0.74%.

The verdict

Earlier this year, Dentsply Sirona announced the acquisition of Propel Orthodontics for $113 million in cash. This purchase will help Dentsply to gain traction in the clear-aligner market which is forecast to grow to $8.7 billion by 2028, from just $2.4 billion in 2020.

Further, Dentsply’s expanding bottom-line and stable cash flows make it a better investment compared to SmileDirectClub, as the former is better equipped to handle macroeconomic shocks. 

SDC shares were trading at $5.68 per share on Friday afternoon, down $0.42 (-6.89%). Year-to-date, SDC has declined -52.43%, versus a 19.78% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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