First let me begin by saying that 1300 Smiles (ASX: ONT) is a solid business. It appears well run, has enviable cash flows, pays reasonable dividends and has good scope for growth. Many investors have done well from this chain of dental clinics, and it is likely that many will do so again in the future.
That said, I don't own it and have no intentions of owning it, primarily for one reason: good dentistry is preventative in nature. The occasional check-up and a small amount of work early in life can nip many dental problems in the bud, and a bare minimum of care and attention (brushing your teeth twice daily, for instance) will give you a reasonable set of choppers into your old age.
With sugar-free drinks proliferating and an increased media focus on health and wellbeing (among other factors, such as fluoridated water), it becomes more and more likely that children born in the last 20 years are going to be in reasonable dental health as they get older. Dental problems, like many other health problems are notorious for 'snowballing' later in life, where early neglect can lead to considerably more expensive problems. It becomes a case of 'spending a penny to save a pound'.
For the reasons listed above, I simply do not expect the need for dental work to increase at a greater rate than population growth over the coming decades. If anything, I expect the amount of work required per person to decline marginally, though of course my crystal ball gets pretty cloudy when making such long-term predictions. Of course there will still be a continuous need for braces, caps and other work like wisdom teeth removal, but by and large, decisive intervention for these matters should preclude hassles later in life. Certainly I expect that most of generations Y and Z will grow old without suffering burgeoning dental bills (or having to buy false teeth).
There is always the cosmetic aspect of dental work – teeth whitening and such, because vanity always sells – to which I have two words: medical tourism. Bali and Thailand are undergoing rapid expansions in their medical tourism industries simply because procedures such as teeth whitening are much cheaper there than in Australia.
Foolish takeaway
So there you have it, the reasons I will not own 1300 Smiles. This is not to say that you shouldn't own it – as I said, it is a solid, defensive share – but each investor must make his or her own decision in this regard.
