10/15/2019
By Charles Payne, CEO & Principal Analyst

The IPO focus has been on squeezing every nickel out of an unsuspecting public and avoiding those debuts that see 50% rallies in the share price. The good news for the companies and investment bankers is fewer and fewer companies were chumps this year. What does that make investors that chased these stocks out of the gate?

The SmileDirectClub (SDC) IPO has become a great case study for the recent spate of the failed initial public offering - promoted in a range of $19.00 to $22.00, the stock priced at $23.00 because of outsized demand.

This news made management and investment bankers smile because they weren’t going to leave any money on the table, which has become a cardinal sin in recent years and a sign of poor planning.

On the first day of trading, SmileDirectClub opened at $20.55 and closed at $16.67.  Yikes!

On October 7^th, ten of Wall Street’s biggest and most influential firms placed a buy or equivalent ratings on shares of SmileDirectClub:

• Loop
• William Blair
• Stifel
• Credit Suisse
• Citi
• Guggenheim
• Merrill Lynch
• Jefferies
• UBS
• JP Morgan

JPMorgan Chase & Co (JPM) was the lead underwriting, so maybe JPM felt the need to show its commitment to the stock by placing a target of $31.00 on the stock. Well, the stock popped with all this intellectual firepower behind the name, rallied to $15.20 before finishing the session at $13.49.  Double Yikes!!

The stock was hammered again yesterday after California Governor Gavin Newsom signed in a new law that threatens the company’s business model. 

Interestingly, such risk was outlined in the S-1 filing as the dental industry has been pushing for greater oversight of the retail operations, which they say creates a risk to those looking for professional dentistry. I get where some might see this as an old industry pushing back against innovation and disruption. However, the risk now becomes all too real, as this could be a national hurdle hurting the company’s 300 outlets.

Of course, disclosure was limited even in the S-1 filing, as the company mentioned it qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (also known as the JOBS Act). The act allows for companies to go public with far less scrutiny and compliance than traditionally faced new offerings.

I think the act was needed back in 2012 and helps funnel new ideas to market faster. However, risks should be highlighted better by large firms underwriting these deals and not just at swanky venues during roadshows.

I hope we hear more about how disastrous 2019 IPOs have turned so many individual investors’ smiles into frowns, and why such a “woke” banker like JPMorgan would have taken the lead in such a disaster like SmileDirectClub.

Smile Direct (SDC)

To watch Charles Payne's segment on Smile Click Here.

Charles Payne
Wall Street Strategies

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