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Why SmileDirectClub Shares Tanked 40.4% in November

By Brett Schafer – Dec 7, 2021 at 2:18PM

Key Points

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The oral care company reported disappointing earnings results for the third quarter.

What happened

Shares of SmileDirectClub (SDC -0.81%) tanked 40.4% in November, according to data from S&P Global Market Intelligence. The online teeth-straightening company reported very disappointing earnings results last month, which is likely the main reason the stock is down so much since the start of the period. 

So what

On Nov. 8, SmileDirectClub reported quarterly results for the three months ending in September. Revenue came in at $138 million, a decrease of 18.3% from 2020. This is not a good sign for a company that is supposed to be in high growth mode. It is also unprofitable, posting an $89 million net loss in the quarter.

A person sitting in a dental chair.

Image source: Getty Images.

Management drastically reduced the company's full-year revenue guidance. At the end of the second quarter, SmileDirectClub was guiding for $750 million to $800 million in full-year revenue. Now, that has been revised to $630 million to $650 million, which would be a decrease from 2020. Add all these things together, and it is no surprise the stock was down so much last month.

Lastly, unprofitable high-growth stocks (which SmileDirectClub gets grouped into sometimes) had a rough November in general. This likely exacerbated the sharp sell-off in the stock last month.

Now what

SmileDirectClub now has a market cap of $1.2 billion, giving it a price-to-sales ratio of 1.8. With high gross margins of 77%, the stock could be a bargain if you believe the company can return to growth and ever get to profitability. But if revenue continues to decline while the company hemorrhages cash, there's no price one should pay to own this leaky boat. 

Brett Schafer 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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