If there's one point that's gained a lot of ground in the last few months, it's telemedicine. The idea of just getting on a Zoom (NASDAQ:ZM) call or the like with a doctor, explaining symptoms, and maybe using a camera to show off various wounds or moles is appealing. With COVID-19 still out there, and ballooning in cases if not so much in deaths and hospitalizations, taking those little extra precautions makes sense to many. SmileDirectClub (NASDAQ:SDC) is delivering on this notion itself, and the latest earnings report out of the company suggests that people are warming to the concept, though pre-market trading saw the company's share price slide significantly.
Teledentistry? Yes, That's a Thing Now.
SmileDirectClub's focus is on teledentistry, which means that it can practice at least a kind of dentistry via online methods. More specifically, it supplies a kind of teeth-straightening system to professional dentists and orthodontists.
The company posted a loss of $0.11 per share, but these days, that can be a win in its own right, as the analyst community expected the company to post a loss of $0.17 per share, which was enough to post an earnings beat. Better yet, it was also a step up from the same time last year, when the company posted a loss of $0.89 per share. The company also posted a beat on revenue, bringing in $168.5 million against an expected revenue of $145.7 million.
SmileDirectClub has made a lot of big moves of late; the company's share price has almost tripled the 52-week low set back in early April of $3.64, but the company's 52-week high—set back in mid-February—was $15.54.
An Improving Business Model
The company's CEO, David Katzman, made it clear what he believed was the biggest driver behind the company's success: a better business model. The company, Katzman noted, has been focusing on “controlled growth with profitability,” which is in general a good model to focus on. It's also a pretty obvious focus point. With the company shipping out over 93,000 teeth alignment systems in the third quarter alone, however, it's a focus point that delivers results.
Moreover, SmileDirectClub is reinforcing its improving sales with careful cost controls. The company cut its marketing expenses and its sales-related expenses nearly in half. The company also cut general and administrative expenses down to the bone, losing 81% of same. This means the company could effectively spend around $140.8 million on the two sectors, and with the average gross unit sold at SmileDirectClub going for $1,788, it's clear the company has a focus on profitability.
A Company That's Drawing Interest
While it's clear that dentists and orthodontists are interested in the product line, analysts are putting up interest as well. Our latest research notes that SmileDirectClub is a “buy”, though conviction has slipped a bit in the last three months. Back then, the company had three “sell” ratings, two “hold” and nine “buy”. Now, it only has eight “buy” ratings, though everything else is the same.
Interestingly, the proportions seen today—three “sell”, two “hold” and eight “buy”—are the same seen six months ago. The price target has slipped a bit, going to $10.79 from the $10.96 of three months ago, but given the company's current share price is $9.31 as of this writing, there's clear upside potential in play.
Still, there's clear value afoot here. The company understands the profitability equation and is working to make both sides better at once. It's a little distressing that it cut the marketing budget so hard—how do you promote without a budget? Word of mouth only?—but it's still making sales and may well have a case to let a whispering campaign go through and let dentists and orthodontists tell each other how good SmileDirectClub's line is. The more sales the company makes, the more potential it has for satisfied customers to do the heavy lifting for the company's marketing efforts.
While SmileDirectClub's results may not have been the best, the company is setting itself up well for better future results, especially when we can start getting the various knock-on effects of COVID-19 out of the picture. That telemedicine connection certainly helps during the whole coronavirus matter, in the meantime, as both dental practitioners and patients alike are uncomfortable of the notion of being in close quarters with constantly-open mouths. Therefore, having a piece of this company in your portfolio now could pay off big in the long ru
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