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3 Reasons Why SmileDirectClub Could Be The New Meme Stock

In the past couple of weeks, SmileDirectClub stock caught the attention of the Reddit crowd. Wall Street Memes lists three reasons why SDC can be the new meme stock on the block.

Oral care company SmileDirectClub (SDC), which offers clear aligner treatment to its customers, has become popular on Reddit forums lately.

Disappointing financial results and skepticism towards the business model helped to drag SDC stock price down. For these reasons and others, the stock has drawn the attention of bears while, at the same time, possibly becoming a target of meme mania.

Figure 1: SmileDirectClub office.

Figure 1: SmileDirectClub office.

Wall Street Memes lists three reasons why SDC stock could be the new meme on the block.

(Read more from Wall Street Memes: Wall Street Says: Buy These 3 Nasdaq Stocks On The Dip)

#3. Short sellers on thin ice

Short selling stats on SDC stock show that bears might be playing with fire. According to the data, shorting SDC has become risky and pricey, as the two bullet points below illustrate:

  • Short borrow fee: the interest rate that must be paid by short sellers to borrow the stock is through the roof. SDC currently has a borrow fee of 15%, according to Fintel. For reference, fees above 10% tend to be seen as elevated and may push short sellers to give up on their positions.
  • Short interest ratio: the latest data shows that 34 million shares of SDC out of a float of 99 million are currently shorted, which represents 33% short interest ratio. This number is also considered extremely high and makes shorts vulnerable for a squeeze.

#2. Stock could be oversold

According to Wall Street analysts, consensus price target of $7.44, which is based on fundamentals, suggests that SDC stock could be oversold, after the share price dropped by nearly 50% so far in 2021. The implied upside potential here is a compelling 20%.

Worth noting, however, SmileDirectClub’s most recent earnings report was disappointing. The company has been struggling to improve its cash position and has almost doubled its debt since 2020 (see table below). It remains to be seen whether the company can overcome its growth and balance sheet challenges in the coming quarters.

Figure 2: SDC cash and debt stats.

Figure 2: SDC cash and debt stats.

#1. Massive exposure

Only a few traditional “meme” stocks have been as relevant as SDC has been lately. Aside from GameStop and AMC, many other tickers have failed to achieve such exposure. SDC, on the other hand, managed to reach “top of the chart” status on the list of trending stocks on Reddit a couple of times in the last weeks, with more than 10,000 upvotes.

Figure 3: SDC popularity on Reddit. October 8.

Figure 3: SDC popularity on Reddit. October 8.

For a short squeeze to happen, it is important for the stock’s demand to increase, thus pushing bears out of their trades. At the very least, SDC stock seems to be on the radar of plenty of meme and momentum traders currently.

Our view

Wall Street Memes believes that SmileDirectClub stock checks all the boxes that have made meme stocks so popular earlier this year. As euphoria around shares rises, a short squeeze is not a certainty, but at least a possibility.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)