SmileDirectClub (NASDAQ:SDC) is an oral care company founded in 2014. Headquartered in Nashville, the company operates in the North America, Europe and Asia Pacific regions. Its primary offering is a clear aligner therapy treatment, but it also sells a variety of oral care products, such as whitening kits and gels, toothbrushes, toothpastes and water flossers. SDC stock opened on Nov. 1 at $5.20.

That’s following an initial public offering at $23 per share. CNBC describes the company as wanting “to disrupt the orthodontics industry with less expensive teeth-straightening treatments, convenience, and splashy television and social media advertisements.”

SDC stock has not seen bright days, though. In fact, so far in 2021 it has losses of about 55%, having a 52-week range of $4.63 – $16.08. It hasn’t performed well, having currently lost about 78% off its IPO price. SmileDirectClub has problems with its business model that it will need to fix to survive.

Recent News for SmileDirectClub

SmileDirectClub recently announced it will be expanding its European operations in France by the fourth quarter of 2021.

Other notable business news includes a patent for the company’s SmileBus concept, a vehicle offering services to areas underserved by orthodontists, and the launch of two new water flossers.

These products are an expansion to SmileDirectClub’s premium oral care product line, for which it holds more than 15 patents. In 2020, the company filed a $2.85 billion lawsuit.

Could SDC Stock Be Shorted?

SDC stock has a short percentage of float of 30.76%. This is considered to be high and could lead to a short-squeeze for the stock. But it’s not a guarantee. Before investing in hopes of a possible squeeze, consider the fundamentals.

First of all, there is an unstable trend in revenue growth. From 2018 to 2019, the company’s revenue increased 77% from $398 million to $707 million. In 2020, though, its revenue dropped to $607 million. I generally like to see stable and preferably increasing revenue growth for public companies.

SmileDirectClub also has losses from operations in 2020, 2019 and 2018. It also has net losses for all three fiscal years mentioned, losing $278 million in 2020.

The most worrisome factor, though, is the debt level. Long-term debt surged in 2020 to $393 million from $173 million in 2019. That’s with negative free cash flow for the past three years. Free cash flow is used to support business operations and repay debt. SmileDirectClub will need to find a way to generate positive free cash flow soon.

If this business key metric is not achieved soon, there are two likely scenarios. Either the company has a stock offering to raise cash or it goes bankrupt. SmileDirectClub has an Altman Z-score of 0.55, which indicates the company could go bankrupt in the next two years.

The second quarter 2021 results show that revenue increased for the six months ended June 30 to $374 million compared to revenue of $304 million for the same period a year prior, and while net losses narrowed, they persisted. The company reported net loss of $46 million in the first six months compared to a net loss of $56 million a year prior.

Looking Forward to Q3 SDC Stock Earnings

Statistics do not always tell the whole truth. SmileDirectClub produced an infographic for the first half of 2021 touting a gross margin of 75% and total net revenues growth year-over-year of 23%. But its overall financial performance is very poor, and this has been reflected on the stock price in 2021.

The next earnings report due on Nov. 8, 2021, will be critical. Based on the fundamentals, though, SDC stock should be avoided for now. Its high gross margin is fragile; attracting more customers often comes at the cost of gross margin.

In the end, what matters for any company to create value for its shareholders is a strong balance sheet and consistently strong financial results. SmileDirectClub isn’t there yet.

On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.