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Nov. 14, 2019, 8:52 a.m. EST

SmileDirectClub stock slides another 18% as investor sentiment remains at odds with bullish analyst notes

‘Teledentistry’ startup has struggled since its IPO amid pushback from regulators and orthodontists, but analysts still say it’s a buy

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By Ciara Linnane, MarketWatch

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Chief Financial Officer Kyle Wailes acknowledged a significant increase in legal costs, as the company battled regulatory efforts, including a change of law in California signed by Gov. Gavin Newsom, that includes protections for patients who undergo direct-to-consumer orthodontic treatment.

“Our legal expenses doubled in the third quarter of 2019 compared to the second quarter,” he said. “You can expect to see this continue into the fourth quarter, as we maintain our proactive stance to defend our mission in support of consumer access to care.”

SmileDirect reported a third-quarter loss of $88.3 million, or 89 cents a share, compared with a loss of $15 million. It did not provide a per-share number for the year-ago period. Revenue rose to $180.2 million from $119.7 million in the year-ago quarter. Analysts surveyed by FactSet had forecast a loss of 97 cents a share on revenue of $165.4 million.

The company said it shipped 106,070 aligners in the period, up from 72,387 a year ago. Its average selling price per aligner rose to $1,788 from $1,773. It now expects full-year revenue of $750 million to $755 million, compared with a FactSet consensus of $751.5 million.

JPMorgan said the guidance appeared conservative and forecast a fourth-quarter beat.

“Given the clear momentum we saw in 3Q19, we believe this represents a conservative bar that should enable another beat,” analysts led by Robbie Marcus wrote in a note to clients.

See also: Align Technology shares soar 12.5% after earnings beat

Jefferies analysts led by Brandon Couillard said they continue to view the company as “one of the best open-ended growth stories in medtech with meaningful scale, strong value proposition, and a powerful in-house marketing engine that positions it for multiyear growth (~50% revenue compound annual growth rate through 2-22) in a huge untapped TAM (total addressable market).”

William Blair said it viewed the numbers as positive, “although perhaps not positive enough to change the negative sentiment that has developed around the stock over the last two months given regulatory question marks.”

Analysts led by John Kreger said they expect the regulatory outlook to remain cloudy, including in California. But they are sticking with their outperform rating on the stock.

SmileDirect shares have fallen 20% in the last month, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.57%  has gained 4%.

In case you missed it: SmileDirectClub went public: 5 things to know about the teeth-straightening startup

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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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