SmileDirectClub has been enjoying one of the most dismal and tumultuous rides on the stock market in recent history, with the company’s share prices dipping lower and lower with each passing day. From new regulations passed in California to general suspicion surrounding its innovative business model, SmileDirectClub is facing countless barriers to success that show few signs of abating anytime soon.
Nevertheless, some investors will want to peek under the company’s hood before they write it off for good. Can SmileDirectClub mount a legendary comeback in the marketplace? Thus far, the ongoing decay that’s generated a malaise over SmileDirectClub’s stock performance looks like it’s here to stay.
California’s regulations are hitting the company hard
The latest news from the state of California isn’t good for SmileDirectClub (NASDAQ: SDC), whose valuation has already sunken drastically from its peak. While the firm was previously worth as much as $23 per share and hit a valuation of $8.9 billion, according to some estimates, it’s now wallowing around $10 per share and could sink even further. There’s a diverse array of reasons that SDC isn’t performing as well as its proponents hoped, but one of the chief reasons for its latest dive is a new slate of Californian regulations which have taken aim at the company’s industry.
SDC focuses on the ‘teledentistry industry,’ a budding market that focuses on providing direct-to-consumer orthodontic treatments available for pediatric dentist clinics which have a chance of being highly profitable. Lately, however, that industry has come under fire from regulators, particularly in California, where AB-1519 is now offering consumers/patients more protections than ever before. Patients can now more easily submit complaints to the state’s Dental Board, even if they’ve signed non-disclosure agreements, something that could prove to be a serious headache to SDC and similar teledentistry companies in the near-future.
Investors were clearly turned away from SDC thanks to the new bill, which also indicates that the teledentisry could be facing additional regulations sooner rather than later as the industry matures. Many traditional dentists and orthodontists have been incredibly hostile to the rise of SDC, which doubtlessly contributed to the bill’s passage. Furthermore, widespread opposition from entrenched dental interests could lead to additional regulations being passed elsewhere, crippling SDC’s growth potential even more.
Why do dentists and orthodontists resist SDC so much? Largely because the teledentristy company hopes to angle them out of the marketplace; SDC allows customers to visit a local “Smile Shop” where they can have a 3-D impression of their teeth made before sending them clear aligners in the mail. In some instances, customers can actually order a kit online, ensuring that they never have to leave their homes to receive the dental services. While this business model initially impressed many investors, pushback from legal regulators could complicate its future attractiveness.
SDC needs a radical comeback plan
All in all, things aren’t looking good for SDC, and the company will need a radical comeback plan if it intends to stave off continued market losses. While the company’s prospectus promised that it would “democratize” dental technology and make it easier for the masses to get the orthodontic care they need, not enough customers are buying into its innovative business model to alleviate investor concerns. Dipping from a nearly-$9 billion valuation to a mere $3.68 billion won’t be an easy decline to overcome even if the company has a solid map out of its current predicament.
SDC proved quite successful at raising private funds before its market debut, but the competitive marketplace and more fickle nature of the investors situated there approves to be less than accommodating for the teledentistry industry. Few people seem willing to bet their money on a nascent sector of the market that’s yet to prove its popularity with consumers and is already under fire from regulators. Investors can thus expect hard times for SDC for the foreseeable future. The company’s S-1 statement claims that it can radically reshape the dental market by cutting costs for consumers by thousands of dollars, but few customers seem to trust SDC’s direct-mail-model to the extent that they trust their current orthodontic specialists.
SDC’s whopping valuation means it may yet endure for some time, but don’t expect the company’s early investors to be grinning with joy anytime soon.