By Ciara Linnane, MarketWatch
SmileDirectClub Inc. shares slid another 18% Wednesday, as investors appeared at odds with a continued stream of bullish analyst comment on the “teledentistry” company following its first earnings as a public company.
The stock /zigman2/quotes/214109287/composite SDC -4.53% is trading about 62% below its initial public offering price of $23, after a series of setbacks that include a scathing report from a short seller , regulatory action in California, Alabama and Georgia and opposition from medical organizations, including the American Dental Association and the American Association of Orthodontists to its business practices.
The stock has steadily moved lower, even after all 10 banks that underwrote its September IPO initiated coverage in October with buy ratings.
Those ratings were upheld on Wednesday, with only one bank, Citigroup, lowering its EBITDA estimate and saying the quarterly report added “more fuel for bears than bulls.”
But even then, analyst Stephanie Demko reiterated her buy rating and $19 stock price target, that is more than double its current price. “We continue to believe in SDC’s mid- term growth trajectory,” she wrote in a note. “Next catalyst: FY20 guidance with 4Q19 results.”
Nashville-based SmileDirect, which uses a business model that allows customers to receive clear aligners by mail, posted a wider loss than in the year-earlier period, although not as wide as feared, while revenue came in ahead of estimates.
The company operates out of so-called Smile Shops where customers get a 3-D image of their teeth taken, or they can buy an online kit and make an impression themselves. The results are mailed to the company which then develops and ships the aligners back. Orthodontists have criticized that approach on the basis that thorough oral exams and follow up are required before any orthodontic procedure. Short seller Hindenburg Research said the company has been besieged by complaints from customers whose teeth were damaged or broken by inappropriate treatments.
The company has hit back at “organized dentistry” accusing it of trying to block its effort to provide low-cost teeth-straightening to consumers.
On the company’s earnings call with analysts, Chief Executive David Katzman reiterated that stance.
“I spent my career building and scaling disruptive businesses, and as a disrupter, it is not uncommon to face reactions from an entrenched industry that has not previously been challenged,” he told analysts, according to a FactSet transcript. “T`his is not new for us as a company, nor is it something that will disappear overnight. “
The company has launched a national and international lobbying effort to address its critics, who “have resorted to various tactics to advance their anti-competitive agendas and preserve their pricing power, all in an effort to keep consumer prices high,” he said.