Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by SmileDirectClub, Inc. (NASDAQ:SDC) shareholders over the last year, as the share price declined 13%. That's well below the market return of 44%. SmileDirectClub may have better days ahead, of course; we've only looked at a one year period. The share price has dropped 24% in three months.
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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
SmileDirectClub's revenue didn't grow at all in the last year. In fact, it fell 14%. That looks pretty grim, at a glance. The stock price has languished lately, falling 13% in a year. That seems pretty reasonable given the lack of both profits and revenue growth. We think most holders must believe revenue growth will improve, or else costs will decline.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling SmileDirectClub stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
While SmileDirectClub shareholders are down 13% for the year, the market itself is up 44%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn't as bad as the 24% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for SmileDirectClub you should be aware of.
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. 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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