Despite a recent decline in the stock price, we continue to believe that at current prices, BriteSmile (BSML), offers investors significant appreciation potential over the next two years, with limited downside risk. Though the company is still undergoing major changes following the sale of its Associated Centers business, to Discus Dental earlier this year, we think that with a renewed focus on the direct-to-consumer channel, that this divestiture stimulated, BriteSmile has several large growth opportunities in the years ahead that have not yet been fully discounted by investors.
It is worth noting that BriteSmile’s Chairman and largest shareholder, Anthony Pilaro, and CEO, John Reed, are somewhat going back to their very successful business roots, now that BriteSmile is transforming itself into a real retail business.
In case you are unfamiliar, Mr. Pilaro was one of the controlling shareholders of DFS Group, Ltd., a specialty retailer for international travelers, that was sold to LVMH for over $4 billion in 1997. John Reed, current CEO of BriteSmile, was a high-level executive at DFS for many years, including as Chairman of the Pacific Retailing Division of DFS, where he was responsible for the operations of multiple retail stores, including the largest single, self-standing retail operation in the world. This proven experience in much larger retail operations, gives us the confidence to invest alongside Mr. Pilaro and Mr. Reed as they continue to restructure BriteSmile’s whitening business with a singular focus on a direct-to-consumer strategy.
In this new world of online commerce, it is also important to mention that BriteSmile has tremendous e-commerce potential. In particular, the company has many excellent stand-alone products, including the BriteSmile-to-Go Pen, that can be effectively sold online and through other third-party channels. The sale of these and other whitening products clearly offers BriteSmile a much more scaleable and profitable growth opportunity than that afforded by the whitening spas alone. A close look at some of BriteSmile’s competitors, most notably GoSmile, Inc., will prove to even the most ardent skeptic that a large and profitable market exists for high-end whitening products, despite the heavy competition from low-end products, like Crest WhiteStrips.
Furthermore, we do not think that a product-focused online strategy will have any impact on retail store procedure volume, especially considering the success the company has had in selling the BriteSmile-to-Go Pen on QVC. We would argue, in fact, that BriteSmile’s products have the potential to not only generate a large standalone revenue stream, but to also drive increased traffic to the stores. By labeling these products as, “Aftercare”, the company is missing out on potential customers who may consider the company’s more expensive retail whitening procedure, after having seen the benefits of the $29.95 Whitening Pen.
Nutrisystem (NASDAQ:NTRI), despite its different industry focus, could offer BriteSmile investors a strategy lesson in this regard. After shutting down their offline centers, and focusing on driving traffic to the company’s website for product sales, the company has grown its revenues over 10-fold in a matter of a few years. Incidentally, Nutrisystem (NTRI) also was a major QVC success before its online business took off.
So in sum, we are confident that as management continues to execute on their retail turnaround plan, and as they pursue more aggressive standalone product strategies, BriteSmile’s stock could appreciate significantly as investors become aware of the company’s new growth potential.
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We own shares in the stock mentioned in this report. We first alerted subscribers to BriteSmile at an average share price of $1.75. This report includes market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets or in any particular stock. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. We maintain no legal responsibility to update this report or our holdings in the stock mentioned in this report.
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