Signal From Noise
Research
Signal From Noise
Research
Stay the Course on Align Technologies ($ALGN: $569.22); We Have a 6-12 Month Time Horizon for the Name
Key Takeaways
- Align Technology (ALGN 0.46% ) has one of the most ubiquitous and recognizable brands in orthodontics, yet it has barely penetrated markets for customers who seem to have a great alignment with the product.
- The company is experiencing growth across multiple dimensions. The share of teens as a share of total users is growing rapidly. The company also has the worlds largest 3d printing business.
- The company also has very credible plans to expand internationally. The initial efforts in APAC and other markets have been very promising and are another cylinder in this company’s admirable growth engine.
- The nature of the product, Invisalign, is converging with flush consumers and other trends that we believe are causing consensus to underestimate the earnings and growth potential of the company.
- The company is in the sweet spot of healthcare because it has a product that converges with customer satisfaction, has increasing efficacy, declining costs (as sales of ancillary services increase) and an industry-leading digital platform that’s operational in 60 countries.
On September 30th we highlighted Align Technologies in our Signal From Noise column. In today’s market action (10/13) was amongst the worst performers in the S&P 500 index. It closed down nearly 5% on the day (vs. S&P 500 +0.3%) but did recover from its intraday low $572.51. We know it can always be distressing to enter a position and then to see a drop like this. However, we wanted to send a brief note out saying nothing has changed in the fundamental reasons we recommended this name. We would advise and hope that you not sell positions on weakness such as was seen today.
So, what explains the drop? The many variables that affect price are very hard to pinpoint but there was not a negative piece of news or fundamental reason we can identify for this drop. We suspect it has to do with institutional investors being off-sides on the re-opening/reflation trade and doing some re-positioning on a name that performed handsomely over recent times. As we said in the article, hedge fund ownership of the stock is increasing, and we are very optimistic about future earnings due to the advantageous network effects the company has yet to fully capitalize on.
Reiteration of Risks And Where We Could Be Wrong
There are a lot of competitors in the space and given the quality and sustainability of growth in the clear aligners sub-market, there is certainly an incentive for competitors to innovate. However, ALGN not only has the strongest and most established brand but also has a firm foothold in the offices of Orthodontists that should serve to fuel further growth.
A key risk is that the company’s ambitious international plans do not play out in international markets. Demand may recover unevenly or slowly in many markets that don’t have the same vaccine penetrations as us. The company has optimistic forecasts about reaching a largely unpenetrated market. There’s always a chance that they fumble the implementation.
Despite these risks, we have analyzed the company thoroughly and our recently returned Head of Global Portfolio Strategy has interpreted his proprietary earnings work as very favorable for the name. We’d like to also acknowledge the significant contributions of Brian Rauscher and his team to the Signal From Noise column. We’re very glad to have him back and we’d like to remind you that his proprietary model has a demonstrated multi-decade track record of success.
Articles Read 1/2
🎁 Unlock 1 extra article by joining our Community!
Stay up to date with the latest articles. You’ll even get special recommendations weekly.
Already have an account? Sign In 5fabde-28cf0e-07727a-594021-94585e
Already have an account? Sign In 5fabde-28cf0e-07727a-594021-94585e
