Uncontrollable spending makes it hard to smile about SmileDirectClub

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Stocks of SmileDirectClub (SDC) may be the target of a pump job by social media marketers, but sane people should take stock of SmileDirectClub before investing.

Ready for your regular check-up? I’m not a dentist, but I see something unhealthy going on with it SmileDirectClub SDC> and there might soon be signs of rot in SDC’s stock.

As we will find out, the share price has fallen quite sharply since the start of the year. You’ll have no trouble finding the headlines on the recent surge in the SmileDirectClub share price, but it’s important to see the longer-term trend.

A social media commentator recently noted the strong short-term interest in SDC stocks. This is important to know, but does it have to be the basis of an investment in SmileDirectClub?

After careful consideration – and a thorough analysis of the company’s financial situation – over-enthusiastic traders might decide to take an entirely different action.

A closer look at SDC’s stock

Investor place contributor Alex Sirois called SmileDirectClub a flawed but fun squeeze game, and I tend to agree with his assessment.

Not so long ago, he observed that the SDC stock was the fifth most shorted shares in the market.

His 32.74% short interest undoubtedly made him a prime candidate for a Reddit-presser short powered.

September 13 Tweeter from popular social media commentator Will meade only fueled the fire.

“SDC’s short-term interest is now close to 40%, wow! Meade exclaimed. This post has garnered over 650 likes and is emblematic of the wave of interest surrounding SmileDirectClub today.

My main concern is that retail traders can take a short term fun game and try to turn it into a serious long term investment.

Keep in mind that the SmileDirectClub stock price peaked at $ 16.08 in January. Since then he has been on a relentless downward path.

In mid-September, SDC stock was hovering near the $ 6 level. With this, it threatens to become a penny stock again (a stock that represents a small business and trades for less than $ 5 per share.)

Noting flaws

So what exactly did Sirois mean when he called SmileDirectClub “flawed”?

Obviously, it wouldn’t say it if it didn’t have the data to back it up.

Thus, SmileDirectClub’s second quarter 2021 results results revealed that the company suffered a earnings per share (EPS) loss of 14 cents. It is certainly worse than waiting for a loss of 10 cents.

At the same time, SmileDirectClub’s quarterly revenue was $ 174 million, about 12% below consensus expectations.

Sirois pointed out some strong points. To all of this I would like to add that the company shipped approximately 90,006 orders for unique aligners during the second quarter, marking a sequential decline of 15.9%.

Remember, SmileDirectClub sells profitable aligners.

If the company doesn’t see an increase or at least a balance in single orders in this segment, that’s a major problem.

Big expenses and downgrading

Another concern is that SmileDirectClub is operating at a financial loss.

Here is some second quarter 2021 statistics to cringe any accountant (and the SmileDirectClub stock bulls):

  • Marketing and sales spend increased 177.9% year-on-year

  • General and administrative expenses are up 23.8%

  • The company incurred a quarterly adjusted operating loss of $ 52.7

  • Operating cash flow of – $ 28.3 million

  • Free cash flow was – $ 51 million

  • Total debt (short and long term) at the end of the second quarter was $ 744.1 million – even worse than the already distressing debt of $ 655.4 million at the end of the first quarter of 2021

I already mentioned the quarterly EPS loss of 14 cents. Could it be that the uncontrollable spending of SmileDirectClub is making it difficult to turn income into profit?

If you’ve read this far, surely you already know the answer to this question.

JP Morgan analysts also undoubtedly know the answer. They recently reduce their price target on the SDC stock from $ 10 to $ 6, while downgrading their rating on the stock from “neutral” to “underweight”.

The bottom line

It’s perfectly okay to have fun trading SmileDirectClub shares as a short-term Reddit pump game.

Maybe there will be an epic short squeeze, or maybe there won’t be. As long as you take a very small position size, the outcome doesn’t matter too much.

If you are a serious investor, be careful with SDC stocks.

The company is currently in a deep financial hole – and convincing permanent bulls is like pulling teeth.

The stock market can be unpredictable, volatile and at times utterly absurd. InvestorPlace.com strives to cut through the noise and bring you insight into what matters – and how it affects your wallet. We offer thoughtful coverage on everything from actions To cryptos To pre-IPO investments. As you live and breathe latest stock news or wait for your actions to pay you, InvestorPlace.com at your back.

At the time of publication, David Moadel had (directly or indirectly) no position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.

David Moadel provided compelling content – and sometimes crossed the line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) InvestorPlace.com. He is also a chief analyst and market researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.

SDC stock was trading at $ 6.82 per share on Monday morning, up $ 0.12 (+ 1.79%). Year-to-date, the SDC has fallen -42.88%, compared to a 16.90% increase in the benchmark S&P 500 over the same period.

About the Author: David Moadel

David Moadel provided compelling content – and sometimes crossed the line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) InvestorPlace.com. He is also a chief analyst and market researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.

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