Have you ever woken up in the morning, looked in the mirror as you’re about to brush your teeth, and wished you could fix that not so perfect smile?
If you have $1,895 in your pocket or are willing to pay $85 over the course of 24 months, you’re in luck.
Smile Direct Club (SDC) provides a low-cost alternative to the $6,000+ braces provided by traditional dentistry.
That’s right. You can kiss that awkward teenager look goodbye and get ready for your sexy new teeth in just six months, while nobody even notices.
But I’m not writing to you today to explain how you can save money by avoiding that awkward hunk of metal in your mouth.
When I explain how you can profit off this company that has taken a whopping 62% beatdown since it’s recent IPO, you’ll have no choice but to flash those pearly teeth.
SDC Meeting the Growing Demand for Picture Perfect Smiles… Worldwide
Smile Direct Club (SDC) has some exciting new prospects.
One of the first to the public market in the realm of invisible teeth aligner solutions, the company has a jump start on an approach to orthodontistry that looks more and more like the way of the future.
The orthodontics market in the U.S. sits at $239 billion — and the worldwide market, an astonishing $945.
With all this money spent each year on achieving better-looking teeth, SDC has a whole heck of a lot of room to move into.
Not only that, the market is primed for huge expansion. 85% of people in the world have malocclusion, but only 1% have received professional help.
The direct to consumer approach that SDC offers makes the process much more practical and affordable.
Already, 700,000 people have used SDC to correct their teeth, and that includes people in the U.K., Canada, Ireland, Australia, and New Zealand where the company recently expanded.
SDC Issues That Make Us Frown, Regardless of Our Teeth
On the surface, the opportunity in Smile Direct Club looks all white and shiny.
But when we pull out the floss and dental equipment, we see some potential cavities in the making that reveal a different story going on here.
Going short on IPO is one of the linchpins of my IPO Payday service, but let me walk you a little deeper into the dirty details on SDC to explain whether we should gear up for some downward price action.
For starters, the company’s initial IPO price was $23 per share. That number, just over 4 months since its debut, sits at a lowly 8.74.
That’s not necessarily bad, given the potential long term prospects of the industry. However, upon taking a closer look at the company, there are a few problems I see going on.
Part of Smile Direct’s business model — and a major impetus for the company going public — was opening up SmileShop stores where people could have their 3D imaging done in person.
Two states, Alabama and Georgia, passed a dental regulation just prior to SDC’s IPO that requires a licensed dentist to be present during the scans.
If more states follow suit, the extra costs involved in having these highly trained professionals on salary — in addition to very expensive imaging machines — could place a tremendous burden on the company.
The legal disputes that Smile Direct Club has already taken on to protest the regulations have cost the company nearly $550 million. That’s pretty striking, considering that total debt once sat at just over $225 million.
On top of it all, SDC has made some pretty questionable decisions around how to delegate their $1.3 billion in IPO proceedings.
Rather than reinvesting that money back into the company, the company’s head honchos have used to pay off insiders, pre-IPO investors, and… wait for it… themselves!
That’s right, the three Katzmans brothers who founded the company took $400 million and also used $3.4 million to buy a private jet.
SDC Is Heavily Shorted Due to The Fundamentals
Smile Direct is more than 50% off its highs at these levels, and the question that traders have on their mind is whether they should short the stock or play the bounce. This is the time to practice patience no matter what side you want to be on.
For example, right now, SDC has formed a descending triangle pattern, and it’s testing the downtrend line.
At this level, the bulls and bears will duke it out… and if SDC breaks above that downtrend line, I think it could retest the $10 level, as that’s a key psychological level and it could act as a magnet.
There is some good news with SDC, about 2 weeks ago, the plaintiffs dropped the lawsuit… and things could be looking brighter for SDC.
However, it’s not quite there for a short squeeze play just yet. The company has about 100M shares outstanding and a short interest of approximately 19%.
So I think SDC isn’t out of the water just yet… what could happen is more shorts pile in and push the stock below the key support level at $7.50. That price action should shake out the weak hands. Thereafter, SDC could find another support level.
Here are two ways that I may play SDC:
- If the downtrend line holds, I would look to establish a bearish position and play for a quick move down.
- If SDC breaks above that downtrend line and the short interest rises above 20%, it could make for a short squeeze play and we could see it pop above $10.
A green light signal with my thesis will be sent if I see a bullish case, or a red light signal if I’m bearish.
I’m not going to jump the gun with this play, instead, I’ll wait for the price action to tell me whether I should make a move or not. Whatever the case may be, I’ll let my clients know about my moves in SDC.