white and silver metal tool

The SmileDirectClub (NASDAQ:SDC) share price is down 77% from their IPO price of $23. The share price is now $5.20. Could earnings and previous highest short interests lead to a big move?

Smile Direct Club and IPO

SmileDirectClub is a tele-dentistry company. SDC produces 3D-printed clear aligners. Their aligners are a competitor of traditional braces and clear alignment companies like Invisalign (NASDAQ:ALGN), who are up 14% after their recent earnings.

SDC’s revenue and growth performed well after their IPO, but the share price declined after being continually unprofitable. Secondly, it had just settled an ugly legal dispute with its former partner, Align Technology, six months before its IPO. Align was initially SmileDirectClub’s exclusive third-party distributor, but emerged as a competitor by opening its own retail stores and violating its non-compete clause. SmileDirectClub won the legal battle and Align was forced to sell its 19% stake in the company below market value, but that dispute signalled Align’s arrival as a major competitor.

Recent movement

The stock has been fluctuating between $5 and $7.40 for a few months now. The high volatility has been due to a high short interest, with longs and shorts fighting for control. Volume has also been much higher in these months compared to previous. August saw 193 million shares traded, slightly higher than months before it. September had 600 million shares trade hands and October had 300 million. With the current price at $5.20, the lower end of the recent price range, SDC is on watch to see if it pushes higher in the run up to earnings or drops below.

Short interest

Short interest for the stock was one of the highest on the market not so long ago. Since then, the numbers have dropped and they are not included in our top 30 short interest list. But the short percentage is much higher than many other stocks. Could a bad earnings report lead to more shorts piling in again? If so, we could see the price initially drop, but followed by a large price range as we have seen recently. A good earnings could lead to current short sellers covering their positions. This could lead to a push towards that upper range of $7.40.

Overall

For now we are staying on the sidelines. Earnings can be hard to figure out and can be more of a gamble than an investment. Let’s see what the price action does around this report, due out November 8th. There could be great opportunities for day traders and short term swingers to get involved in the volatility.

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