SmileDirectClub (NASDAQ:SDC) stock is a growth play that is no longer getting a premium price for that growth.
The company, which sells clear plastic inserts for orthodontics, trades at about $5.90 today. That’s less than half the price it traded for in January, a third of where it traded when it came public in September 2019.
The market cap of $2.13 billion is barely three times SmileDirect’s expected revenue of $727 million because it has been unable to rein in operating losses. These came to $53.2 million in the June quarter, on revenue of $162.5 million. Analysts expressed disappointment, sending shares down 24% despite 72% year-over-year growth. Another loss is expected when it reports in November.
SmileDirectClub got a bump on a Reddit-inspired short squeeze in September, but it was a brief respite from the downturn. The squeeze sent prices as high as $7.50, but they’re now trading close to where they were before it began.
SmileDirectClub is a tech stock, but its technology isn’t unique. Align Technology (NASDAQ:ALGN) is just one of its competitors, and Align is doing better. Those shares are up 6% in the last year, while SDC is down 35%.
While SmileDirect has been piling on operating losses, Align has been making money. Align is built around the Invisalign brand and should do $4 billion in business this year, up 60%.
Align once supplied SmileDirect with product and had 19% of its stock. The two fell out in 2018 after Align began opening stores that competed with those of SmileDirect. The stores were SmileDirect’s secret sauce. Align now has partnerships with local dentists and its prices are lower.
My own daughter had conventional braces as a teen, then had to re-do the fix with Invisalign. The second treatment worked. We weren’t aware of SmileDirect at the time, going through an orthodontist.
The Future of SDC Stock
Despite the competition, SmileDirectClub is still growing, and there’s still a market to be won.
Up to 60-75% of us have “malocclusion,” teeth that need straightening. Clear plastic straighteners that are replaced as needed are a better solution, compared with the wire frames orthodontists traditionally tighten.
SmileDirect is spending money by growing its international presence, opening in France this quarter, its seventh European operation.
The French SmileShop will offer whitening as well as straightening services. Management will be done remotely, through a French orthodontist. The company also has an arrangement with Walmart (NYSE:WMT).
The market is growing and has room for multiple players. One report has it growing from $2.85 billion this year to over $10 billion in 2028. Clear aligners have brought adults to the market who missed out as teens. About 30% of customers are now adults.
The Bottom Line
SDC remains heavily shorted, with almost one-third of its float borrowed to sell at lower prices. That means any good news could drive a big pop in the stock.
That might include a pay-off on its international expansion. A positive earnings surprise in November could lead to an outsized gain against the shorts. Over the long run, SDC stock has a long runway of potential growth ahead of it.
But if you’re going into an established growth market, you go with the market leader. That’s Align Technology. Unless SmileDirect can turn that around, that’s where you should stay.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.