Ready for your regular checkup? I’m no dentist, but I’m seeing something unhealthy going on with SmileDirectClub (NASDAQ:SDC). There may be signs of decay forming in SDC stock right now.

For one, the share price has declined quite sharply year-to-date (YTD) — the stock is down 46%. Sure, you won’t have trouble finding headlines about the SDC share price surging higher recently, but it’s important to see the longer-term trend.

Of course, some social media commentators have noted the heavy short interest in SDC right now. That’s important to be aware of. But should it be the basis for an investment in the stock? After careful consideration — and a deep dive into the company’s financial situation — overeager traders might want to sink their teeth into a different pick altogether.

A Closer Look at SDC Stock

Fellow InvestorPlace contributor Alex Sirois recently called SmileDirectClub a “flawed but fun squeeze play.” I tend to concur with that assessment. Not long ago, Sirois observed that SDC stock was the fifth-most heavily shorted stock on the market.

Without a doubt, SmileDirectClub’s more than 32% short interest has made it a prime candidate for a Reddit-fueled short squeeze. What’s more, a Sept. 13 tweet from popular social media commentator Will Meade only added fuel to the fire. That post earned over 650 likes and is emblematic of the groundswell of interest surrounding the company today.

My primary concern here is that retail traders might take a fun short-squeeze play and attempt to turn it into a serious long-term investment. Bear in mind, the share price topped out at $16.08 back in late January. Since then, it has been on a relentless path to the downside.

As of now, SDC stock is hovering near the $6 level. With that, it’s threatening to become a penny stock again (a stock that represents a small company and trades for less than $5 per share).

Noting SmileDirectClub’s Flaws

So, what exactly did Sirois mean when he called SmileDirectClub flawed? Clearly, he wouldn’t say that unless he had the data to back it up.

To that end, SDC’s second-quarter 2021 results reveal that the company suffered an earnings per share (EPS) loss of 14 cents for the period. That’s definitely worse than the expected 10-cent loss.

But that’s not all. At the same time, the company’s quarterly revenues totaled $174.2 million, which was around 12% below the consensus expectations according to Zacks.

Sirois made some powerful points on SDC stock’s flaws. To all of that, I’d like to also point out that the company shipped out roughly 90,000 “unique aligner orders” during Q2. That marked a sequential decline of nearly 16%.

Remember, SmileDirectClub is in the business of selling cost-effective aligners. So, if the company isn’t seeing an increase (or at least breaking even) when it comes to unique orders in this segment, that’s a major problem.

Big Expenses and a Downgrade

It doesn’t end there, however. Another concern here is that SmileDirectClub is operating at a financial loss. Here are some Q2 2021 stats to make any accountant (and the bulls) flat-out cringe:

• Marketing and selling expenses rose about 178% year-over-year (YOY)
• General and administrative expenses climbed about 24%
• The company saw an adjusted operating loss of $52.7 million
• Operating cash flow came to -$28.3 million
• Free cash flow (FCF) was -$51 million
• Finally, total debt (short and long-term) at the close of Q2 was $744.1 million, even worse than the $655.4 million in debt at the end of Q1 2021

I’ve already mentioned the 14-cent quarterly EPS loss that SDC saw. So, is it possible that SmileDirectClub’s out-of-control expenses are making it difficult to turn revenues into earnings?

If you’ve read this far, then you probably already know the answer to that question. And the analysts at J.P. Morgan undoubtedly know the answer, too. They recently cut their price target on SDC stock from $10 to $6 and downgraded their rating on the stock to “underweight.”

The Bottom Line on SDC Stock

Of course, it’s perfectly okay to have some fun trading SmileDirectClub shares as a short-term Reddit pump play. Maybe there will be an epic short squeeze, maybe there won’t. As long as you’re taking a very small position size, the outcome doesn’t matter too much.

But if you’re a serious investor? Please be careful with SDC stock.

The company’s currently in a deep financial hole. Still, convincing the permabulls of this is like pulling teeth.

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On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.