SmileDirectClub (SDC) earned the unfortunate title of “the worst unicorn IPO of 2019” by CNBC in October. The poor performance seems to be, at least in part, due to increased regulatory pressure from the American Dental Association and the State of California, as I discussed in a recent article. The stock price has not improved since then.
First, there was a detailed and scathing report by Hindenburg Research, a forensic financial research group, titled, “SmileDirectClub: Moving fast and breaking things in people’s mouths—85% downside.” The article summarizes the ethical and patient safety concerns that have been raised about SDC’s business model and some financial irresponsibility by the company. In a summary point, the article states, “All told, we believe SmileDirectClub will wind up as a case study in why it’s a bad idea to invest in a company that attempts to fit a complex, dangerous medical process onto a low-cost, high volume assembly line.” This article, published in early October, continues to be referenced in stock analysis reports, as does this one from The Motley Fool.
Second, SDC’s third quarter earnings report (the first since its IPO) was not encouraging to potential investors. Analysts (here and here) have noted that despite increased revenue, the company’s costs have risen, particularly its legal costs to combat legislation reform and other litigation.
What will the future hold? Due to the current low price, some analysts are recommending that investors buy SDC stock for the long investment. As noted in the Hindenburg Research report, states such as Alabama and Georgia have joined California in seeking to curb SDC’s practices, citing the unlicensed and unsupervised practice of dentistry. If more states join the fray, and if the ADA’s efforts with the FDA are successful, it may be difficult for analysts to see a bright future for SDC stock.
