Momentum-focused traders won’t like this one — not at all. Nashville-based dental aligner designer SmileDirectClub (NASDAQ:SDC) is definitely out of favor on Wall Street, as the price trajectory of SDC stock is clearly to the downside.

On the other hand, some value hunters might perk up at the thought of buying SmileDirectClub shares on sale. After all, everybody likes a bargain, right?

Not so fast. We need to recall the old Warren Buffett saying. It goes something like this: price is what you pay, but value is what you actually get.

So, should bottom fishers cast their nets for SDC stock now? In a sea of intriguing investments, you’ll likely find that SmileDirectClub is best left alone for better opportunities.

SDC Stock at a Glance

To get some perspective, we should go back to the beginning. Slightly over two years ago, SmileDirectClub priced its initial public offering (IPO) at $23 per share. Keep that price in mind as we continue to analyze SDC stock. Be forewarned, though, that this might be about as comfortable as a dental procedure.

Unfortunately, there was no hype phase or even a grace period for early SmileDirectClub investors. The share price sank throughout the remainder of 2019 and into 2020, even breaking below $4 in March of 2020.

As if that wasn’t bad enough, SDC stock resumed its painful downtrend in late 2021. Believe it or not, by early December, the share price had fallen below $3.

SmileDirectClub, after all of that carnage, is now firmly in penny stock territory — informally defined as a stock of a small company that trades for less than $5 per share. This isn’t to suggest that penny stocks are bad. Still, SmileDirectClub’s early investors didn’t likely anticipate a multi-year drawdown in the share price.

Nothing to Smile About Here

So, let’s revisit the share-price-versus-actual-value dichotomy. Is SDC stock a bona fide bargain, or a toxic asset? Let’s do what we typically do in these types of situations: check the data.

Here’s how SmileDirectClub fared during 2021’s third quarter:

• $138 million in total revenue, down 18.3% year-over-year (YOY)
• Net earnings loss of $89 million, a decrease of 105.6% YOY
• Adjusted EBITDA loss of $54 million, representing a $57 million YOY decline
• Diluted earnings per share (EPS) loss of 23 cents, down 109.1% YOY

For 2021 year-to-date at the time of the third-quarter data release, SmileDirectClub’s net earnings loss totaled $240 million. As a basis of comparison, Wall Street (or at least, analysts polled by FactSet) expected the company to post $183 million in quarterly revenue and an earnings loss of 14 cents per share.

Along with all of that, SmileDirectClub guided for full-year 2021 revenue in a range between $630 million and $650 million. That’s short of Wall Street’s expectation of around $758 million in full-year revenue.

The Profitability Timeline Is Unclear

Obviously, it would behoove SmileDirectClub to increase its revenues, cut costs or do both. In other words, the company needs to switch to a profitable state as soon as possible.

Interestingly, SmileDirectClub CEO David Katzman attributed his company’s poor third-quarter financial performance to “macroeconomic headwinds that are influencing the spending of our core demographic.” SmileDirectClub “could not have anticipated the rapidly evolving nature of this impact on our consumer,” the CEO also asserted.

Granted, the company might not have been able to anticipate inflationary pressure and other economic headwinds impacting SmileDirectClub’s consumers.

Still, these factors could remain problematic for a while. As William Blair analyst John Kreger explained, “adult consumers appear to be re-directing discretionary spending away from aesthetics toward vacations and other goods.”

To put it another way, in a challenging economic environment, straight smiles might not be a priority. “And SDC generally serves a lower-income consumer who is more impacted by the current spike in inflation,” Kreger added.

With that in mind, the William Blair analysts titled their research note: “Another Large Sales and EBITDA Miss Makes Timing of Profitability Very Unclear.”

The Takeaway on SDC Stock

William Blair’s analysts are having difficulty envisioning how SmileDirectClub will climb out of its financial hole. Given the company’s quarterly fiscal data, it’s understandable that the analysts would strike a cautionary tone.

Therefore, even at its reduced price point, you don’t have to view SDC stock as a value pay — if anything, it’s just a value trap.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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