Tele-dentistry vendor SmileDirectClub has been one of the most popular “meme stocks” on the main Reddit forums. In the past few months, shares fell victim to high volatility due to the clash between bulls, encouraged by main mania, and bears who pushed short interest higher.
On Monday, November 8, the company will release third quarter results. Ahead of it, Wall Street Memes takes a closer look at SmileDirectClub stock (SDC) – Get SmileDirectClub Inc Class A Report and the potential of it heading higher in the next few days.
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SmileDirectClub’s Q2 results were a disappointment. The company lagged expectations on both EPS and revenues: by $0.05 and $24 million, respectively. The miss was attributed to a number of factors that included (1) the residual impact of early April’s cyber-attack, (2) the lasting economic effects of the COVID-19 crisis on the company’s target demographic, and (3) the slower scaling of new international markets due to the pandemic.
Despite the miss vs. consensus estimates, SmileDirectClub’s $174 million in total revenues increased 62% compared to the same period in 2020. Also, net loss of $55 million improved YOY from a loss of $95 million last year. The company seems to be climbing out of the hole, as mask-wearing customers were discouraged from spending on orthodontics in 2020.
Regarding a few key operating metrics, unique aligner shipments were reported at 90,006 compared to 106,345 in the past quarter. However, the average aligner gross sales price of $1,885 this time compared favorably to $1,817 in Q2 of 2020.
What to expect of Q3
Wall Street expects net loss per share of $0.12 and revenues of $182.5 million in Q3. SmileDirectClub’s business outlook provided in Q2 mentions that short-term headwinds are to be expected due to macroeconomic factors and the cyber-attack. However, SmileDirectClub’s long-term revenue growth targets remain unchanged.
SmileDirectClub’s full year guidance is for revenues of $750 million to $800 million. According to the company, the assumptions underlying the lower end of the range include (1) expectations for a better Q4 than Q3, driven by typical seasonality along with a small ramp in Germany and Spain; and (2) a continuation of the macroeconomic headwinds that were evident in the latter half of Q2.
To achieve the $800 revenue goal, the return of normal consumer spending patterns for the company’s target demographic is key, as well as the success of marketing campaigns and partner network adoption.
Wall Street Memes’ take
Lately, business has not been as good as SmileDirectClub would have hoped for. The good news is that, if the company is right in its assessment of what has been dragging revenues, the challenges should be temporary and non-recurrent. The pandemic should gradually fade as vaccination rates improve and the company recovers from the disruptive cyber-attack.
Despite the company having warned that further headwinds should be expected in Q3, the impact of the pandemic should become milder over time. With expectations having been set lower, there is a chance that SmileDirectClub may finally deliver an earnings and guidance beat.
Should this be the case, SDC’s meme status and high short interest could create a bullish avalanche, and the stock could head higher after producing painful YTD losses of over 50%.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)