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SmileDirectClub Stock: Wall Street Still Sees 25% Upside

Despite having some reservations, Wall Street analysts see 25% upside potential on SDC shares. Today, Wall Street Memes takes another look at SmileDirectClub stock.

Teledentistry company SmileDirectClub  (SDC) - Get SmileDirectClub Inc Class A Report often trends around the main discussion boards. Frequently a short-sell target, the company draws the attention of retail investors especially because of the short squeeze potential.

Figure 1: SDC popularity on Reddit. September 27.

Figure 1: SDC popularity on Reddit. September 27.

However, despite some caution around the company’s fundamentals, consensus suggests that SDC stock has considerable upside potential. Wall Street Memes looks at some sell side recommendations on this name.

Figure 2: SmileDirectClub's aligners kit.

Figure 2: SmileDirectClub's aligners kit.

(Read more from Wall Street Memes: This Oral Care Stock Is The Next Short Squeeze Candidate)

Skeptical, but still undervalued

Consensus rating on SmileDirectClub stock is currently neutral. Among eleven Wall Street reports released in the last three months, only one is an overweight recommendation amid seven equal weights and three underperforms. Despite skepticism, the average twelve-month price target is $7.40, which indicates 25% upside potential from current levels.

The latest take came from Stifel Nicolaus analyst Jonathan Block. The analyst downgraded the stock from buy to neutral as he saw more headwinds than tailwinds for the stock in the future. He also downgraded his price target to $7 from $9, saying that SmileDirectClub is losing market share in North America to competitors like Align Technology  (ALGN) - Get Align Technology, Inc. Report and Dentsply Sirona  (XRAY) - Get DENTSPLY SIRONA, Inc. Report. Still, the analyst’s price target suggests 23% upside potential on SDC.

Another neutral stance is Stephans analyst Chris Cooley’s. He has adjusted his price target lower, from $17 to $11, and his buy recommendation to hold. According to him, risks to calendar 2021 guidance means that shares should remain range bound. On the long term, the analyst added:

"We remain of the view SDC possesses strong consumer brand recognition and a defensible channel presence. [However], the increasing fluidity of the model and recent miscues likely relegate the company to a ‘show me’ story despite the long-term potential."

On the most bearish end of the spectrum, Goldman Sachs analyst Nathan Rich has a sell recommendation and a $4 price target, suggesting 23% downside. According to the analyst, SmileDirectClub will likely burn another $219 million in cash through the end of next year as competitive challenges weigh on Q2 results.

"While SDC believes these impacts are near-term and reaffirmed 5-year targets of 20-30% topline growth and 25-30% adj. EBITDA margins, we think the Q2 update demonstrates the challenges of driving revenue growth while expanding margins."

J.P Morgan analyst Robbie Marcus is another bear with a sell recommendation. However, the analyst has a $6 price target on SDC, for minimal upside potential. His bear case is justified by skepticism on long-term profitability.

"Given the impaired near-term revenue trajectory, and what could be structurally higher costs, we see better opportunities in our coverage universe."

Credit Suisse analyst Vik Chopra is a rare bull. Two months ago, the analyst resumed its coverage on SDC with a buy recommendation and $11 price target, suggesting a whopping 80%-plus gain opportunity.

Wall Street Meme’s take

SmileDirectClub’s most recent earnings report failed to impress. The company has been struggling to improve its cash position and has almost doubled its debt since 2020. Time will tell whether the company can overcome its growth and balance sheet challenges in the next quarters.

On the other hand, Wall Street’s consensus price target that is based on fundamentals suggests that SDC stock could be oversold, after the share price dropped over 50% so far in 2021. Also, as a potential “meme target”, elevated short interest of 33% of the float could entice retail investors to push the stock into a short squeeze in the foreseeable future.

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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)