SmileDirectClub (NASDAQ:SDC) is all about straightening teeth using a telehealth approach by selling its teeth aligners directly online. But after looking at the company’s lousy Q2 earnings release, there wasn’t much to smile about. In effect, SDC stock will likely tread water until SmileDirectClub becomes profitable.

This is nothing new for SDC stock. Since the end of last year, when the stock closed at $11.94, it has been falling. As of mid-day Oct. 6, SDC was at $6.61. That is a drop of $5.33, more than half, and represents a 44.6% fall. To say the least, this is not impressive.

In fact, since the Aug. 9 release of the company’s Q2 financials, the stock had fallen 23% from $6.70 to $5.16 as of Oct 4, though it has since rebounded back. This has the feel of a stock that is volatile.

The Bad News in SmileDirectClub’s Q2 Earnings

As most people know who read my articles, I look behind the hype from most companies and only focus on their financials. That is where all the nonsense gets sorted out.

For example, the company reported a nice increase in Q2 for its sales over last year. Total revenue was up 62.7% to $174.2 million from $107 million in Q2 last year. However, in Q1, sales were $199.5 million, a 12.7% sequential drop. The company said that this was due to stimulus payments in March. But no one likes to see a quarter-over-quarter decline in sales.

Moreover, the company is still losing money with little progress. For example, the net loss was $16.9 million for Q2 2021 compared to a loss of $26.8 million last year. But for the past 6 months, the company’s net loss was $45.8 million, not much better than the loss of $56 million last year.

Moreover, even on a cash flow basis, SmileDirectClub made just a little bit of progress, despite higher sales. For example, its cash flow from operations (CFFO), seen in the cash flow statement, was negative $59.4 million over the last 6 months. So it’s still burning close to $60 million every 2 quarters. Last year its CFFO after six months was a loss of $85.8 million.

I guess that is progress since it means cash burn has decreased by $26 million. But it still has to be financed somehow. Meanwhile, SmileDirectClub almost doubled its long-term debt (up 86.6%). Not including the current portion of the debt, it rose to $733.4 million from $392.9 million since Dec. 31.

What SDC Stock Is Worth

It’s nice that sales rose 63%, but the market doesn’t really care about that. The only thing that matters is the future.

For example, analysts now expect sales next year to rise just 20.6% from $758.5 million in 2021 to $914.4 million in 2022. This is taken from Seeking Alpha’s survey of 12 analysts.

Obviously, 20% growth is not anywhere near the 63% growth in sales in the last 12 months. People are not buying aligners for their teeth like they used to. Maybe it is due to the lack of stimulus payments. Maybe the product doesn’t work that well over the long term, or perhaps competition has better products. But either way, SmileDirectClub is likely to keep burning through more cash.

That means that the company is either going to have to raise more debt, burn through cash, or raise common equity. None of these choices is going to be good for SDC stock.

For example, although 11 analysts surveyed by Refinitiv have an average price target of $6.11, the latest reports on SDC stock have all been downgrades. 6 analysts have all issued downgrades and negative reports on the stock in the last two months.

What To Do With SDC Stock

Right now SDC stock sells for less than 1 times sales for both 2021 and 2022 sales forecasts. However, I suspect that it could fall further if the company does not show significant profit growth and sales growth in Q3.

Therefore, most long-term investors should probably wait and see what SmileDirectClub will deliver and whether they have gotten the message. So far they haven’t. If cash deteriorates or debt rises, expect to see a lower price.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.