SmileDirectClub (NASDAQ:SDC) stock crashed nearly 60% overnight as the online orthodontics company filed for Chapter 11 bankruptcy.
The stock opened at just 18 cents per share, a market capitalization of under $100 million. Its IPO price in 2019 was $23 per share.
The company hopes to stay in business with a $20 million “debtor in possession” infusion from its founders, and a “brief” marketing process for its remaining equity. The company said another $60 million was available “upon the satisfaction of certain conditions.”
The story of SmileDirect, in other words, may not be over.
Can SDC Stock Smile Through the Pain?
I was skeptical of SmileDirectClub’s chances from the beginning, preferring Align Technology (NASDAQ:ALGN). Align sells through orthodontists, while SmileDirect used direct-to-consumer advertising.
Align once provided SmileDirect with its products and held an equity interest in it. The two companies fell out after Align began offering its products through its own stores.
Align’s stock is up 72% since the SmileDirect IPO. While Reddit users may have been high on SmileDirect, InvestorPlace writers like Will Ashworth have not been.
The problem was always SmileDirect’s marketing costs since it was avoiding traditional channels. The idea was that adults who didn’t want to go into an office would go to a shop for clear aligners that gradually straightened their teeth.
Supporters thought a switch to selling through dentists would cut SmileDirect’s costs. This led to a brief Reddit-inspired short squeeze.
But I doubted that argument even at the height of the 2021 bull market.
Before the filing, SmileDirect was expecting stable revenue and margins through 2025. This had some retail investors hoping for a better deal than the market is now giving them. Most, however, are now negative on the stock.
What Happens Next?
Retail investors may continue to hold out for a better price from the founders, but it’s unlikely to move much higher. There are easier ways to make money.
As of this writing, Dana Blankenhorn did not hold (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.
