Hi again! Several of you asked me what I think of Smile Direct Club ($SDC) since I have been shorting this stock since the IPO and even during their brief rise. And I will give you a short brief of why I was bearish up until now and why I am “speculative bullish” today.
First of all, before I make my investment decisions, I do a lot of research. Being a trained management consulting, I used to go visit 5-10 $AEO stores a long time ago measuring
- How many customers are going in and how many are leaving with a bag(s)?
- How much merchandize is discounted?
- How does this compared to last quarter
After gather this data weekly, then I decide what I want to do with my $AEO shares.
I did the same when I decided to participated in Square ($SQ) IPO. I went to talk to over 30 customers of theirs and (1) learned that it’s not just a credit card swipe machine (2) they are building an ecosystem comparable to what Apple has (3) loyalty is through the roof. And what did I get? More than 10x return from $SQ
Alright. Enough about how I make decisions. Back to $SDC. I have spoken to more than a dozen orthodontists including someone in my family. What did I find out?
- So many failed cases after being promised that they ($SDC) can do it
- Unable to get refunds and when you do, you have to sign an NDA
- So many lawsuits and complaints
I asked these orthodontists (I do understand that most of them hate $SDC since they are taking away their potential businesses so must take their comments with a grain of salt) what the major issue was and most of them said $SDC seems to take all cases even if they shouldn’t as it’s not a minor fix.
Hence, I have been shorting $SDC and I got it right. And I made tons of money. But at the current level, I think the valuation is attractive for someone to acquire them. It’s less than $500 million. Globally (they are expanding into other markets. How do I know? I applied for a job there so I heard things. Yes, I sometimes apply for jobs at companies I am interested in to see what’s up) recognizable name. All the they to do is narrow their TAM into minor cases, settle the lawsuits and complaints and start with a renewed focus.
Conclusion: I would be a buyer at this level as some PE can snatch this, turn things around and grow. I would…if I know of any PE willing to work with me to acquire and turn it around. So if you are in PE, message me. I will help you. If you are an investor, do your damn DD before you get your toes in.