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Take a pass on Align Technology, this investor says


AlignLooking for a smart healthcare tech play? You might be interested in Align Technology (Align Technology Stock Quote, Chart, News, Analysts, Financials NASDAQ:ALGN), a winner of a stock if there ever was one over the past half-decade, and a look under the hood shows a well-run, profitable company with lots of runway in the dental products market.

All good, right? But one glance at the share price and investors should be thinking twice, says portfolio manager Gordon Reid.

“This is one we wouldn’t be interested in and that’s simply on a valuation basis,” says Reid, CEO of Goodreid Investment Counsel, who spoke on BNN Bloomberg on Wednesday.

“It’s trading I think around $650 a share and about ten, 11 or 12 times revenue — not earnings, revenue. So much of the future potential and the good news is already built into this stock that we would pass on this one,” he said.

Makers of Invisalign orthodontics and iTero dental scanners and owners of a dental CAD/CAM software business, Align Technology had a rough go of it during the first stretch of the pandemic when dental and orthodontia clinics were closed during lockdowns. The company saw revenue drop 41 per cent year-over-year to $352.3 million for the second quarter 2020, with volume for Invisalign dropping to 221,900 cases from 377,100 the year before. (All figures in US dollars.)

But the company quickly picked it up over the back half of the year and managed to grow sales by a full 21 per cent in the third quarter compared to the previous year and then by 28.4 per cent year-over-year for the Q4, bringing in a record $834.5 million. By the first quarter 2021, Align hit $894.8 million in sales, representing a 62-per-cent year-over-year increase. Net income was $2.49 per share, where analysts had on average been calling for $2.02 per share.

Commenting on the pace of the company’s growth, CEO Joe Hogan said it took Align ten years to reach the milestone of its one millionth Invisalign patient whereas the company is currently on track to add a million patients every six months.

“I’m pleased to report another strong quarter with record revenues and volumes reflecting strong growth for both Invisalign Clear Aligners and iTero Systems and Services across products and customer channels worldwide,” said CEO Joe Hogan in an April 28 press release.

“Q1 sequential Invisalign Clear Aligner growth was driven by strength in both adult and teen market segments, across products and customer channels especially in North America and the EMEA region, led by UKI, Germany and France. The year is off to a great start – and Q1 reflects increasing momentum from continued investments in our strategic initiatives,” Hogan said.

All that good news had its impact on Align Technology’s share price, which went from a pandemic low of about $150 in March of last year to now about $600.

That type of share price appreciation may look good to shareholders but investors shouldn’t bite, says Reid.

“It’s good technology in the option to traditional braces. A good company and good technology but, again, there’s a right price and a wrong price for everything in this world,” Reid said.

Opinions differ, of course. CNBC’s Jim Cramer, for one, said in April before the company’s first quarter release, “I’ve been saying it’s too late [to buy into the stock] for a long time, but it’s not. You know why? Because this is the quintessential selfie stock.”

“All people want is to look good and feel good, and Align does that,” Cramer said.

Cramer is in good company, as analysts from Stifel raised their target price on Align after the Q1 from $613 to $750 per share to go with a “Buy” rating, saying that the company’s guidance for 2021 was surprising to the upside.

“The quarter was very solid, and we view it as just shy of 2H20’s exceptional results,” said Stifel analyst Jonathan Block in a report.

Piper Sandler also raised its target after the Q1 results, with analyst Jason Bednar giving Align an “Overweight” rating and target of $735 versus $700 previously.

Align, which announces its second quarter 2021 results on July 28, is also doing well by its shareholders through share buybacks, announcing in May a new stock repurchase program that could see the company buy up to $1.0 billion of its stock over the next three years. The move follows on a $600-million repurchase plan conducted between 2018 and 2021.

“We’re pleased to announce a new $1.0 billion stock repurchase program, which reflects the strength of our balance sheet and cash flow generation, as well as management’s and the Board’s continued confidence in our ability to capitalize on the large market opportunities in our target markets and trajectory for growth,” said CFO John Morici in a press release.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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