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3 High-Flying Stocks Fallen on Hard Times

MyWallSt Staff, The Motley Fool

This article was first published by MyWallSt.

Sometimes, it's difficult to tell why a stock price has fallen.

Is it due to natural volatility, or is there a deeper issue rooted in the company? Has the stock been overvalued and merely gone on sale, or has the long-term vision of a company changed, which could spell trouble ahead for investors?

A roller coaster headed down.

Image source: Unsplash.

After recently hitting all-time highs, these three companies have suffered massive blows in their stock prices. That doesn't necessarily mean they're out for the count, though.

1. Align Technology

Align Technology (NASDAQ: ALGN) was among the worst-performing members of the S&P 500 Health Care index for June 2019 with a loss of 3.7%. This ranks Align Technology as the fourth-worst performer of the 63 companies currently in the index.

Align Technology, the company responsible for the world-famous Invisalign range of clear teeth aligners, reached an all-time high of $390 in September 2018. By October of the same year, however, the stock price had dropped 43% into the $220 range.

One key reason for this was the increasing pressure from competitors. As of 2017, there were 27 clear aligners on the market, and one of these competitors -- SmileDirectClub -- offers an easier, more affordable direct-to-home service. Initially, Align partnered with SmileDirectClub to supply non-Invisalign aligners, but following disputes, earlier this year Align was forced to close its 12 retail stores.

The kind of price drop we saw last year can rattle investors, but the future of Align Technology is still bright.

Align is still the clear leader in discrete teeth aligners, with over 5 million patients in 90 different countries. Align Technology has over 400 U.S. patents, a network of doctors, and has even become a household name -- no small feat for an orthodontic company. In 2018, revenue grew 33.5% to $1.97 billion and net income improved 72.95% to $400.2 million, showing that this company is certainly not done for yet.

2. Arista Networks

Arista Networks (NYSE: ANET) is another high-flying company that has been struggling in recent times.

Arista Networks designs and sells low-latency switches for high-performance computing, large-scale data centers, and cloud computing. Founded in 2004, Arista Networks has been successfully able to compete with industry giants such as Cisco that have had a 20-year head start.

In 2018, Arista stock fell 9% due to rumors of Microsoft moving to one of Arista's competitors. With 16% of Arista's revenue coming from Microsoft in 2016, it is no doubt that such a loss would be incredibly damaging to the company. After recovering from this price drop, Arista's stock price dropped 20% in April of this year following poor first-quarter reports. In Q1 2019, revenue grew 26% year over year. This is down from the 41% revenue growth seen in the same quarter the year before and flat from the quarter before.

However, while growth has decelerated, Arista still has a lot of potential. Recently, the company authorized a $1 billion stock buyback program, which shows that the executives still have faith in their product and that the stock may be undervalued.

Arista Technology also still has a lot to gain through the success and growth of the cloud computing and data center industry. Arista Networks is currently partnered with some of the biggest names in technology (Amazon, Alphabet, Microsoft, and Intel, to name a few) and still has a long way to go.

3. 2U

To say 2U (NASDAQ: TWOU) stock is struggling would be an understatement. This stock has been trending downward for the past 12 months, currently sitting at $40 -- nearly 60% off its all-time highs.

2U is a Maryland-based software-as-a-service company that offers educational technology to universities, allowing them to create online degree programs. 2U seemed as though it was flying high in its early days winning awards from Forbes as one of the "10 Start-Ups Changing the World."

While revenue increased 44% in 2018, 2U's net income fell a further 30% to a loss of $38.33 million. The rally 2U's stock price saw in early 2019 was quickly stopped in its tracks when management decreased its earnings guidance, resulting in a 40% drop in the share price.

Looking beyond the stock price will reveal that 2U is a business for the future, however. CEO Christopher Paucek described the business model as a long-term proposition between the company and the universities it partners with, which include Berkeley, Harvard, and Yale. After 2U's recent acquisition of Trilogy Education, a company that aims to prepare adults for careers in the digital economy, its portfolio of university partners grew from 36 to 68.

What's so striking about this business is that in the 11 years it's been running, it has never lost a single client. In time, this sticky business model will hopefully create a positive net income for the company and bring this high-flying stock back to its former glory.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Align Technology, Arista Networks, and 2U. Read our full disclosure policy here.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends 2U, Align Technology, Alphabet (A shares), Alphabet (C shares), Amazon, Arista Networks, and Microsoft. The Motley Fool owns shares of Intel and has the following options: short September 2019 $50 calls on Intel and long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.