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Here's Why You Should Hold SmileDirectClub (SDC) Stock for Now

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SmileDirectClub, Inc. (SDC - Free Report) is well-poised for growth in the coming months, backed by the expansion in the teledentistry space. The company’s long-term growth target looks encouraging. However, escalating costs and stiff competition continue to pose concerns.

Over the past year, the Zacks Rank #3 (Hold) company has lost 71.1% versus the 1.1% rise of its industry and the S&P 500’s 7.7% growth.

The oral care company, offering new-generation teledentistry technology and a vertically integrated model, has a market capitalization of $783.9 million. SmileDirectClub projects 4.3% growth for the next five years.

Key Growth Drivers

Teledentistry Space View Bright: Going by a June 2021 Insight Partners report, the Teledentistry market (which was valued at $667.13 million in 2019) is projected to reach $2.61 billion by 2027, seeing a CAGR of 17.1% between 2019 and 2027.

Realizing the enormous prospects of the space, SmileDirectClub has extended its teledentistry platform to dental and orthodontic offices through a collaborative model designed specifically for dentists who currently do not offer an orthodontic product to patients, and an office-directed model designed for orthodontists and dentists as a traditional in-office clear aligner product.

The company continues to see favorable industry dynamics with broader acceptance of telehealth and, specifically, teledentistry.

Long-Term Growth Target Encouraging: SmileDirectClub’s long-term strategy includes achieving the average revenue growth target of 20-30% per year and adjusted EBITDA margins of 25-30% for the next five years. This implies a long-term target (on a sequential basis) of 5% to 7% each quarter.

Per the company, the long-term revenue target reflects its efforts to capture market share, while improving customer experience. For 2021, it expects total revenues of $630-$650 million.

Strategic Alliances Add Growth: In terms of retail partnership, SmileDirectClub’s oral care products are now available at more than 12,500 retail stores nationwide, including Walmart, CVS, Walgreens, and Sam's Club. The partnerships are aimed at serving a highly efficient lead source and brand-building opportunity.

 

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In the third quarter, the company announced the receipt of a patent for its SmileBus concept. It has also developed the only vertically integrated MedTech platform for straightening teeth at scale, providing an unparalleled customer experience.

Downsides

Expenses Escalating: SmileDirectClub’s third-quarter marketing and selling expenses rose 44.1%. General and administrative expenses were also up 15.6% year over year. The company incurred an adjusted operating loss of $83.6 million in the reported quarter, wider than the year-ago operating loss of $22.1 million.

Tough Competitive Landscape: SmileDirectClub competes with a handful of smaller companies that collectively have limited market share in the clear aligner industry, including Candid Co., Byte (Dentsply) and SnapCorrect. With the introduction of the company’s collaborative and wholesale partner network, it also faces competition from more well-established competitors in the traditional orthodontic industry, which requires in-person visits, such as Align Technology, Inc.

Estimate Trend

SmileDirectClub has been witnessing a negative estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its EPS has moved 41.4% down to ($0.82).

The Zacks Consensus Estimate for 2022 revenues is pegged at $719.6 billion, suggesting 12.4% growth from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Apollo Endosurgery, Inc. (APEN - Free Report) and Laboratory Corporation of America Holdings (LH - Free Report) . You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare, sporting a Zacks Rank #1 at present, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.

AMN Healthcare has outperformed its industry over the past year. AMN has gained 42% versus the industry’s 58.2% decline.

Apollo Endosurgery, currently carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.

Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 43.5% versus the industry’s 6.1% fall.

Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently sports a Zacks Rank #1.

Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.