Even the best investor on earth makes unsuccessful investments. But serious investors should think long and hard about avoiding extreme losses. It must have been painful to be a SmileDirectClub, Inc. (NASDAQ:SDC) shareholder over the last year, since the stock price plummeted 87% in that time. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. SmileDirectClub hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Shareholders have had an even rougher run lately, with the share price down 57% in the last 90 days. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
SmileDirectClub wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In just one year SmileDirectClub saw its revenue fall by 11%. That's not what investors generally want to see. The share price fall of 87% in a year tells the story. That's a stern reminder that profitless companies need to grow the top line, at the very least. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
SmileDirectClub is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think SmileDirectClub will earn in the future (free analyst consensus estimates)
A Different Perspective
We doubt SmileDirectClub shareholders are happy with the loss of 87% over twelve months. That falls short of the market, which lost 20%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 57% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand SmileDirectClub better, we need to consider many other factors. Take risks, for example - SmileDirectClub has 4 warning signs (and 1 which is concerning) we think you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.