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Here’s Why SmileDirectClub is a Buy Regardless of What Earnings Say

Here’s Why SmileDirectClub is a Buy Regardless of What Earnings Say

SmileDirectClub (NASDAQ:SDC) will reported second-quarter earnings after the market closed on May 13. The consensus estimate is that the company will post negative earnings of 22 cents per share on revenue of $218 million. That would beat the negative earnings of 25 cents and revenue of $196 million the company reported in the first quarter.

However, the whisper number for SDC stock is for negative earnings of 25 cents per share. This would be in line with the company’s underperformance since it debuted its initial public offering in September 2019. In February, things were looking particularly bleak as the company’s management gave a muted outlook for the company’s long-term growth.

When the company reported their first-quarter earnings, CEO David Katzman confirmed that the company’s revenue for 2021 through 2025 would grow at an average rate of 20% to 30% each year. That was a significantly lower forecast than the 77% growth the company recorded in 2019.

That was bad news for investors who were basing their optimism for the stock on robust growth expectations. And to make matters worse, that forecast came in before the economy all but stopped at the onset of the Covid-19 pandemic.

In the wake of the sheltering in place orders, SmileDirectClub will undoubtedly take a hit in their upcoming earnings, as well as for the next quarter or two.

However, as the economy re-opens there is a very viable path for SmileDirectClub that may mean there is a long-term gain for this short-term pain.

SmileDirectClub May Thrive in a Social Distancing World

In the midst of the Covid-19 pandemic, few things would seem as fraught with peril as having a dentist, or orthodontist, have instruments in your, or your child’s mouth and breathing the same air – even with the use of masks – for a sustained period of time.

And as the country begins to re-open, that scenario may be one of the last scenarios that individuals are comfortable with. That’s where SmileDirectClub has an advantage. Many potential customers will not only practice social distancing but want contactless delivery as much as possible. And that fits SmileDirectClub perfectly.

Telehealth has become an emerging movement in the medical sector. SmileDirectClub is a pioneer in teledentistry. The company offers its signature aligners with the benefits of being able to straighten mild to moderately teeth in significantly less time and at less cost than traditional braces.

Customers can visit a SmileShop for an in-person scan, but it’s not necessary. The company offers an at-home kit that customers can use to create impressions of their jaw. A licensed dentist or orthodontist will create a custom plan. And the aligners are mailed to the customer.

Short-Term Pain May Bring a Long-Term Gain

In the first place, the biggest factor behind SmileDirectClub’s lost revenue during the pandemic is the fact that the companies SmileShops are closed. The company also shifted its 3D printing operations to help other industries.

To drive that point home, SDC stock got a 20% bump when the company’s stores began to open in May.

More Major Insurers are Covering SmileDirectClub

Ask any parent who has frequented the orthodontists and they’ll tell you that it can be expensive. And with a price tag of right around $2,000, even SmileDirectClub may be out of reach for low- to middle-income households. But SmileDirectClub has is now being accepted by major health insurers including United Health Group, Aetna - owned by CVS Health (NYSE:CVS) -  and most recently Anthem (NYSE:ANTM).

Katzman welcomed the news saying, “The adoption of telehealth as a safe and efficacious way to receive dental care by the major U.S. insurance providers confirms that now more than ever, consumers except a solution that allows them to receive care using remote technology that protects their health and safety.”

The Bottom Line on SDC Stock

SmileDirectClub is a classic example of a disrupter. The company was already disrupting traditional orthodontistry prior to the pandemic. SmileDirectClub has already helped fix one million smiles. The business model is viable, and it can grow. The only question is by how much.

The economic recovery is likely to be uneven. And if the unemployment rate continues to climb, it could put a dent in the ability of many customers to afford SmileDirectClub’s services. But many Americans will remain employed, albeit perhaps working more remotely than they had previously.

However, I would tend to agree with the assessment of the company’s CEO. It’s hard to imagine that the company could achieve growth of over 40%, which is what many analysts want to see. However, if you’re a patient investor, SDC may make you smile as a good long-term play as the country enters a post-pandemic world.

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Chris Markoch
About The Editor

Chris Markoch

Editor & Contributing Author

Retirement, Individual Investing

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