Even With A 95% Surge, Cautious Investors Are Not Rewarding SmileDirectClub, Inc.'s (NASDAQ:SDC) Performance Completely
The SmileDirectClub, Inc. (NASDAQ:SDC) share price has done very well over the last month, posting an excellent gain of 95%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.
Although its price has surged higher, SmileDirectClub may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 4.1x and even P/S higher than 9x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
Check out our latest analysis for SmileDirectClub
How Has SmileDirectClub Performed Recently?
SmileDirectClub could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on SmileDirectClub will help you uncover what's on the horizon.
How Is SmileDirectClub's Revenue Growth Trending?
In order to justify its P/S ratio, SmileDirectClub would need to produce anemic growth that's substantially trailing the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. This means it has also seen a slide in revenue over the longer-term as revenue is down 43% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 9.0% each year over the next three years. With the industry predicted to deliver 9.8% growth each year, the company is positioned for a comparable revenue result.
With this information, we find it odd that SmileDirectClub is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
What Does SmileDirectClub's P/S Mean For Investors?
Shares in SmileDirectClub have risen appreciably however, its P/S is still subdued. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've seen that SmileDirectClub currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.
There are also other vital risk factors to consider and we've discovered 7 warning signs for SmileDirectClub (3 are concerning!) that you should be aware of before investing here.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
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