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SmileDirectClub, Inc. (NASDAQ:SDC) Analysts Are More Bearish Than They Used To Be

Market forces rained on the parade of SmileDirectClub, Inc. (NASDAQ:SDC) shareholders today, when the analysts downgraded their forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon. Investors however, have been notably more optimistic about SmileDirectClub recently, with the stock price up a remarkable 28% to US$1.73 in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following the latest downgrade, the current consensus, from the nine analysts covering SmileDirectClub, is for revenues of US$491m in 2022, which would reflect an uneasy 9.4% reduction in SmileDirectClub's sales over the past 12 months. Losses are forecast to narrow 6.7% to US$0.77 per share. However, before this estimates update, the consensus had been expecting revenues of US$616m and US$0.53 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.

See our latest analysis for SmileDirectClub

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The consensus price target fell 21% to US$1.28, implicitly signalling that lower earnings per share are a leading indicator for SmileDirectClub's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on SmileDirectClub, with the most bullish analyst valuing it at US$2.00 and the most bearish at US$0.90 per share. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

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Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. One more thing stood out to us about these estimates, and it's the idea that SmileDirectClub's decline is expected to accelerate, with revenues forecast to fall at an annualised rate of 18% to the end of 2022. This tops off a historical decline of 5.0% a year over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 7.9% per year. So while a broad number of companies are forecast to grow, unfortunately SmileDirectClub is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at SmileDirectClub. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of SmileDirectClub.

Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple SmileDirectClub analysts - going out to 2024, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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