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Why SmileDirectClub Stock Was Getting Hit Today

By Brian Feroldi - Updated Oct 14, 2019 at 6:04PM

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The roller-coaster ride continues.

What happened

Shares of SmileDirectClub (SDC 6.79%), a maker of low-cost dental aligners, were down 12% as of 3:50 p.m. EDT on Monday. The double-digit drop is traceable to a regulatory update from the State of California.

So what

The American Dental Association and the American Association of Orthodontists aren't happy with SmileDirectClub's direct-to-consumer business practices and have been flexing their political muscles in an effort to stop the company's progress.

On Sunday, Gov. Gavin Newsom of California signed Assembly Bill 1519, which may have a big impact on SmileDirectClub.

The goods news is that the bill doesn't require the company to cease or modify its operations. But management did say that the bill will "create unnecessary hurdles and costs to Californians that need care but struggle to afford it."

Man putting clear dental aligner into his mouth

Image source: Getty Images.

Management pointed out that "nothing regarding teledentistry in this legislation can take effect until the [Medical Board of California] has given all stakeholders the opportunity to submit public comment and debate the merits of any proposed rules with clinically based data."

Nonetheless, traders are viewing the signing of the bill as bad news for the company and are selling off the stock in response.

Now what

It's been a rough first month as a public company for SmileDirectClub. The share price has been cut in half since it started trading on Sept. 12, in part because of the growing regulatory uncertainty surrounding this company's future. 

The good news for investors is that the company's opportunity for growth is still tremendous, and its direct-to-consumer business model could attract a lot of cost-conscious customers. The bad news is that state dental boards across the country have been threatening the company with litigation that could slow or stop its growth.

It's impossible to say what the future holds for this high growth stock since its share price is likely to continue swinging wildly based on the news of the day. Given the uncertainty, my plan is to root for this company's success from the safety of the sidelines.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
SDC
$1.73 (6.79%) $0.11

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