Ready for your regular checkup? I'm no dentist, but I'm seeing something unhealthy going on with SmileDirectClub < NASDAQ:SDC> and there may be signs of decay forming in SDC stock soon.

As we'll discover, the share price has declined quite sharply year-to-date. You won't have trouble finding headlines about the SmileDirectClub share price surging higher recently, but it's important to see the longer-term trend.

One particular social media commentator noted the heavy short interest in SDC stock recently. That's important to be aware of, but should it be the basis of an investment in SmileDirectClub?

After careful consideration - and a deep dive into the company's financial situation - overeager traders might decide to sink their teeth into a different stock altogether.

InvestorPlace contributor Alex Sirois called SmileDirectClub a flawed but fun squeeze play, and I tend to concur with his assessment.

Not long ago, he observed that SDC stock was the fifth-most-heavily shorted stock on the market.

Its 32.74% short interest, without a doubt, made it a prime candidate for a Reddit-fueled short squeeze.

A Sept. 13 tweet from popular social media commentator Will Meade only added fuel to the fire.

"SDC short interest is almost 40% now, wow!" Meade exclaimed. That posting earned over 650 likes, and is emblematic of the groundswell of interest surrounding SmileDirectClub today.

My primary concern is that retail traders might take a fun short-squeeze play and try to turn it into a serious long-term investment.

Bear in mind that the SmileDirectClub share price topped out at $16.08 in January. Since then, it's been on a relentless path to the downside.

By the middle of September, SDC stock was hovering near the $6 level. With that, it's threatening to become a penny stock again (stock that represents a small company and trades for less than $5 per share.)

So, what exactly did Sirois mean when he called SmileDirectClub "flawed"?

Clearly, he wouldn't say it unless he had the data to back it up.

Thus, SmileDirectClub's second-quarter 2021 earnings results revealed that the company suffered an earnings per share (EPS) loss of 14 cents. That's definitely worse than the expectation of a 10-cent loss.

At the same time, SmileDirectClub's quarterly revenues totaled $174 million, which was around 12% below the consensus expectations.

Sirois made some powerful points there. To all of that, I'd like to add that the company shipped out roughly 90,006 unique aligner orders during the second quarter, marking a 15.9% sequential decline.

Remember, SmileDirectClub is in the business of selling cost-effective aligners.

If the company isn't seeing an increase or at least a break-even in unique orders in this segment, it's a major problem.

Another concern is that SmileDirectClub is operating at a financial loss.

Here are some second-quarter 2021 stats to make any accountant (and the SmileDirectClub's stock bulls) cringe:

• Marketing and selling expenses rose 177.9% year-over-year
• General and administrative expenses were up 23.8%
• The company incurred a quarterly adjusted operating loss of $52.7
• Operating cash flow was -$28.3 million
• Free cash flow was -$51 million
• Total debt (short and long-term) at the end of the second quarter was $744.1 million - even worse than the already distressing $655.4 million worth of debt at the end of 2021's first quarter

I already mentioned the 14-cent quarterly EPS loss. 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 surely know the answer to that question already.

The analysts at J.P. Morgan undoubtedly know the answer, too. They recently cut their price target on SDC stock from $10 to $6, while downgrading their rating on the stock from "neutral" to "underweight."

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, or maybe there won't. As long as you're taking a very small position size, the outcome doesn't matter too much.

If you're a serious investor, though, then please be careful with SDC stock.

The company's currently in a deep financial hole - and convincing the perma-bulls of this is like pulling teeth.

The stock market can be unpredictable, volatile, and sometimes totally nonsensical. InvestorPlace.com strives to cut through the noise and bring you information on what matters – and how it impacts your portfolio. We deliver thoughtful coverage on everything from stocks to cryptos to pre-IPO investments. So whether you live and breathe breaking stock news or expect your stocks to pay you, InvestorPlace.com has your back.

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.

SDC shares were trading at $6.82 per share on Monday morning, up $0.12 (+1.79%). Year-to-date, SDC has declined -42.88%, versus a 16.90% rise in the benchmark S&P 500 index during the same period.

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.

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