On paper, SmileDirectClub (NASDAQ:SDC) stock seems like a viable business. A company specializing in clear aligners and teeth-straightening kits should be a no-brainer.
One of the main problems with traditional orthodontics is the physically cumbersome nature of braces, but through SmileDirectClub’s services, you can enjoy treatment without signaling as such, thereby boosting the profile of SDC stock.
Well, that’s the theory anyways. In reality, the circumstances didn’t play out well at all for SDC stock. Shortly after the underlying company’s initial public offering, the New York Times released an ungenerous article covering its business practices.
Primarily, the report asserted that SmileDirectClub actively works to limit information about customer dissatisfaction.
Some might call it a hit piece. Whatever your views, the fact of the matter is that SDC stock plummeted almost immediately after its debut. Further, when the Times’ article came out, shares were enjoying an upswing — and they didn’t collapse until after it became apparent that the coronavirus pandemic was about to unleash perdition on the U.S.
As well, the market performance of SDC stock has left much to be desired. Between the spring doldrums to early 2021, shares experienced a dramatic rebound as speculators anticipated a return to normal.
To be fair, buying during those doldrums — when shares were priced at around $4 — and dumping when they hit double digits would have made sense in hindsight.
But those who insisted on holding shares were left with some real pain. Over the trailing year since the close of the second week of 2022, SDC stock is down more than 80%. That is simply staggering and here’s the kicker — the numbers are about to worsen since we’re heading toward the most unflattering framework of the comparison.
Still, a celebrity partnership may be just what the doctor ordered.
Influencers to Rescue SDC Stock?
Something remarkable happened during the Jan. 14 session. SDC stock jumped double digits to the tune of 14.2%.
Of course, you don’t want to take this skyrocketing out of context. Even with this dramatic move, shares are still down 80% in the trailing year. Nevertheless, the catalyst for the fresh bullishness — a partnership to with several high-profile celebs to launch SmileDirectClub’s new Confidence Council initiative — may be worth consideration for speculators.
I’m not familiar with the names — Jonathan Van Ness, Tunde Oyeneyin and Arielle Vandenberg. However, many folks (apparently) look up to them and that might help get the juices flowing for SDC stock.
According to marketing experts, one of the reasons why celebrity endorsements work is that they foster familiarity and, by deduction, trust with the product/service in question.
In addition, to people desiring to be like celebrities, endorsements also make the associated advertisements easier to remember. Sometimes, those memories can get triggered, say, at a big-box retailer. In a similar (and perhaps cynical) vein, companies can target various demographics through specific celebrity partnerships.
Now, that might all sound like anecdotes appealing to a loosely defined common-sense framework so here is some data to back up the claims.
According to research by Harvard Business School professor Anita Elberse and Barclays Capital analyst Jeroen Verleun, a “celebrity endorsement increases a company’s sales an average of 4% relative to its competition, and also increases a company’s stock value by 0.25%.”
USA Today, which published the research, notes that for “large companies—which are more likely to use celebrity endorsements—4% can be billions, justifying the exorbitant costs.”
About the only area where political influence may be ineffective is in the political realm.
Viable But Risky
It seems to me from that research, as long as SmileDirectClub doesn’t do anything stupid — like hawking “Brandon”-related swag as a crazy example — the company may be onto something.
It might be desperate. It might be cynical, but when you’re down 80%, you’ve got nothing to lose. So, you might as well try an initiative with an established track record.
Then again, I’m not exactly sure if there’s a track record for dentistry/orthodontics-related celebrity endorsements. I mean, endorsements work because many people inherently want to drink tasty beverages or wear flashy clothes. Do they want orthodontic procedures, which are also quite pricey?
That might be a tough sell. I’m not saying it can’t work. But it’s awfully risky.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.