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Why the Pacific Smiles Group Ltd share price has been smashed today

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The Pacific Smiles Group Ltd (ASX: PSQ) share price has certainly not had the best start to the day.

In morning trade the dental centre operator’s shares are down 13% to $1.80.

What happened?

This morning Pacific Smiles provided the market with a trading update. As you might have guessed, it wasn’t overly positive.

According to the release trading in April and May has been softer than expected. As a result, same centre patient fee growth is at 3.8% year-to-date, compared to its guidance for at least 5%.

Unfortunately the company appears to believe things will get worse before they get better and has revised its full-year same centre patient fee growth guidance to 3%.

Further to this, management has had to downgrade its full-year underlying EBITDA guidance to between $20.4 million and $21 million, from $21.7 million and $23.2 million.

The soft trading appears to be a nationwide trend, with management advising that no single dental centre cohort or geographic region has contributed to the decline.

In light of these weak trading conditions, I wouldn’t be surprised to see the shares of rival 1300 Smiles Limited (ASX: ONT) and dental products provider SDI Limited (ASX: SDI) also come under pressure today.

Should you invest?

Even after today’s decline Pacific Smiles’ shares are changing hands at approximately 27x trailing earnings.

I feel this is quite expensive given the soft trading environment and its current outlook.

Although a long way out still and things are likely to change, management has forecast FY 2018 EBITDA growth of around 10%. In my opinion this isn’t sufficient to justify an investment at the current share price.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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