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SmileDirectClub (SDC) Reels Under Rising Costs, Debt Woes

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SmileDirectClub, Inc. is currently putting up with issues like escalating operating expenses, leveraged balance sheet and a tough competitive landscape. However, prospects across tele-dentistry space and strategically aligned retail and insurance partnerships are major upsides. Currently, SmileDirectClub carries a Zacks Rank #4 (Sell).

Over the past year, shares of SmileDirectClub have underperformed the broader industry. The stock has declined 34.9% against the industry’s 30.6% rise.

The company’s second-quarter adjusted loss was wider than the Zacks Consensus Estimate. Financing revenues were flat. SmileDirectClub’s second-quarter marketing and selling expenses rose 177.9%. General and administrative expenses were also up 23.8% year over year. The company incurred adjusted operating loss of $52.7 million in the reported quarter.

A highly leveraged balance sheet is an added woe. Operating cash flow in the quarter was a negative $28.3 million. Free cash flow for the second quarter was a negative $51 million.

However, realizing enormous prospects of teledentistry space, SmileDirectClub is currently providing a doctor-directed digital end-to-end experience in teledentistry, with 24/7 access to orthodontic care and the back end of lifetime smile guarantee. The company continues to see favorable industry dynamics with broader acceptance of telehealth and specifically, teledentistry.

In terms of retail partnership, SmileDirectClub’s oral care products are now available at over 12,500 retail stores nationwide, including Walmart, CVS, Walgreens, and Sam's Club. In March 2021, SmileDirectClub announced its plan to continue the company’s international expansion with a launch in Mexico. This marks the company’s entrance into Latin America.

Key Picks

A few better-ranked stocks from the Medical-Instruments industry include Intuitive Surgical, Inc. (ISRG - Free Report) , Semler Scientific Inc. and IDEXX Laboratories, Inc. (IDXX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s  Zacks #1 (Strong Buy) Rank stocks here.

Intuitive Surgical has a long-term earnings growth rate of 9.7%.

Semler Scientific has a long-term earnings growth rate of 25%.

IDEXX has a long-term earnings growth rate of 19%.

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