Here's Why Holding Align Technology Stock Could Pay Off

Align Technology, Inc's ALGN successful efforts to broaden the Invisalign portfolio are poised to bring significant growth in the upcoming quarters. Continued expansion into new regions and new manufacturing facilities appears optimistic. A sound financial stability is beneficial for the stock as well. Meanwhile, the adverse macroeconomic impacts on its operations and excessive reliance on a single platform raise concerns.

In the past year, this Zacks Rank #3 (Hold) company has lost 27.6% compared with 2.6% decline of the industry.The S&P 500 composite increased 27.7% during the same time frame.

The renowned medical device company has a market capitalization of $18.34 billion. ALGN's earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 5.92%.

Let's delve deeper.

Upsides

Invisalign Portfolio Expansion: Following its FDA clearance for broad patient applicability, including growing children, teens and adults in late 2023, the IPE system was commercially launched in the United States and Canada in the first quarter of 2024. Recently, it received regulatory clearance in Australia and New Zealand as well. The company is also set to introduce ClinCheck smile video, the next generation of In-Face digitalization with AI-assisted video, which will be available to all doctors using the Invisalign Practice App and ClinCheck treatment planning software.

Earlier in 2023, Align Technology launched a new doctor-enabled direct ship-to-patient feature in its Vivera Retainer Subscription platform, and expanded the Invisalign Comprehensive Three and Three product in APAC countries such as China, Hong Kong, Korea, Taiwan and India.

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Additionally, in the first quarter of 2024, the company's Super Bowl campaign featuring athletes, TikTok, GenZ influencers and fashion designers generated more than 6.1 billion impressions and 18.1 million unique visitors to its consumer websites across the United States. Consumer advertising across the APAC region resulted in more than 6.6 billion impressions and 16 million website visitors, marking a 195% increase from the year-ago quarter's level.

Geographic Expansion Continues: Align Technology is expanding its sales and marketing by reaching new countries and regions, including new areas within Africa and Latin America. By the end of 2023, the company sold directly or through authorized distributors in more than 100 countries. With the opening of its third clear aligner fabrication facility in Wroclaw, Poland, ALGN now has a manufacturing facility in each of its operating territories — Americas (Mexico), APAC (China) and EMEA (Poland).

The company also performs digital treatment planning and interpretation for restorative cases worldwide, including Costa Rica, China, Germany, Spain, Poland, and Japan, among others. Align Technology continues to expand its business through investments in resources, infrastructure and initiatives that help drive growth in Invisalign treatment, intraoral scanners and Exocad CAD/CAM software in existing and new international markets. Its Invisalign Comprehensive Three and Three product is currently available in North America and certain markets in EMEA and APAC, and most recently expanded to French territories and the Middle East.

Strong Solvency, Attractive Returns to Investors: With no debt on its balance sheet, Align Technology looks quite comfortable from the liquidity point of view. The company closed the first quarter of 2024 with $899 million in cash, cash equivalents cash, and short-term marketable securities.

In addition, Align Technology's January 2023 $1 billion stock repurchase program has $650 million available, with up to $150 million of stock buybacks planned in the second quarter, either through a combination of open market repurchase or an accelerated stock repurchase agreement.

Downsides

Macroeconomic Concerns: Although the company is gradually coming out of the impact of the two-and-a-half-year-long healthcare crisis, it still faces challenges from the industry-wide staffing shortages and supply chain. Added to this, Align Technology faces increased challenges from macroeconomic uncertainty due to the ongoing Russia-Ukraine conflict and the potential supply issues related to the war in the Middle East.

Overdependence on Invisalign Technology System: A major portion of Align Technology's net revenues depends on the sale of its Invisalign Technology System, primarily Invisalign Technology Full and Invisalign Technology Teen. Therefore, continued and widespread market acceptance of Invisalign Technology by orthodontists, GPs and consumers is critical to the company's future success. Management fears that if consumers start preferring a competitive product over Invisalign, ALGN's operating results may suffer.

Estimate Trend

The Zacks Consensus Estimate for Align Technology's 2024 earnings per share has remained constant at $9.60 in the past 30 days.

The Zacks Consensus Estimate for the company's 2024 revenues is pegged at 4.13 billion, implying a 6.8% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Hims & Hers Health HIMS, Medpace MEDP and Penumbra PEN.

Hims & Hers Health's earnings are expected to surge 281.8% in 2024 compared with the industry's 15.7% growth. HIMS' earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. Its shares have surged 141.3% against the industry's 27.1% decline in the past year.

HIMS sports a Zacks Rank #1 (Strong Buy) at present.

Medpace, carrying a Zacks Rank #2 (Buy) at present, has an estimated 2024 earnings growth rate of 27.1% compared with the industry's 13.1%. Shares of MEDP have rallied 66.4% compared with the industry's 5% growth over the past year.

MEDP's earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.

Penumbra, carrying a Zacks Rank #2 at present, has an estimated 2024 earnings growth rate of 37.3% compared with the industry's 11.9%. Shares of PEN have lost 45.3% against the industry's 0.6% growth over the past year.

The company's revenues are expected to grow 14.2% year over year in the second quarter of 2024. PEN delivered a trailing four-quarter average earnings surprise of 25.9%.

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