It’s me again, bringing you your next ticket to the moon next to Jeff Bezos.
Today’s pick is a beaten-down stock, and looks like it’s poised for a massive recovery. In this market, where everything seems to go up, there still remain opportunities and this stock is a prime example of that, I’m talking about $SDC, Smile Direct Club.
SDC essentially competes with Invisalign in braces. They make aligners to straighten your teeth, nothing too fancy. You can’t use their products for the most complicated cases, but works great for milder cases. However, their pricing clearly undercuts traditional braces and reduce the cost of wearing traditional braces ($5’800 on average for braces to $1950)
SDC **dropped 25%** just yesterday after earnings. They reported
* $174m or **62.7% growth** year over year
* Net loss of $(55)m or an **improvement of 41.6%** year over year
* Adjusted EBITDA of $(22)m, a **decrease of $2m** year over year
* Diluted EPS of $(0.14), a **44% improvement** year over year
These numbers are great especially considering the extremely cheap valuation and all the headwinds the company faced last year. Most of the issues they faced are one-off expenses and the company is slowly going to get to profitability. Keep in mind that this isn’t your typical Pump and Dump ultra high growth stock, this is a **value play.**
On their earnings call they said that they were negatively impacted by a cyber attack in April, the lasting economic effects of COVID-19, and the slower scaling of international markets due to COVID. However, they are planning to relaunch in Germany and Spain this year and will resume focus on acquiring new customers. This is essentially a new chapter for their business, as they are going to be more aggressive on their customer acquisition and expansion into new markets.
It’s important to note that the long-term story for SDC is intact and looks very promising, as they turn their business around to avoid these short-term one-off issues. SDC has a vertically-integrated platform and a very unique way of operating that prevents any other competitors from stealing their business. This is crucial to their business and is what will eventually allow them to grow profitably.
Short-sellers seem to have forgotten the long-term growth story of SDC and have just thrown away the stock, and this down move is unjustified, as the future is very bright for SDC. Analysts have all come out and downgraded the stock which pushed prices down even more. The company is expected to grow about 20% this year and 24% in 2022. For a value play, have you ever seen numbers like that, this is not your average boomer stock. I can clearly see a path where this company becomes profitable this year, as they really seem to have shifted focus on **growing profitability.**
They could clearly receive a buy-out from Align technologies or another healthcare company. At this valuation, I think major health care companies, manufacturing companies are seriously doing due diligence on SDC. I would clearly see P&G or another conglomerate getting interested in SDC at these prices.
60x 5$ Calls
**TLDR: $SDC just got slammed on earnings yesterday and dropped 25% to $5. $SDC is a great value play at this cheap valuation. As they shift their focus towards profitability, the recovery to $10. Hop aboard with dirt-cheap calls.**
EDIT: There seems to be some controversy among dentists about SDC products, please be careful and read u/TheFatOneKnows comment to learn more. Thanks for pointing this out and trade carefully