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Align Technology (ALGN) Hits 52-Week High: What's Driving It?

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Shares of Align Technology, Inc. ALGN reached a new 52-week high of $508.96 on Dec 1, before closing the session marginally lower at $500.10. The stock has rallied 48.9% since its third-quarter 2020 earnings announcement on Oct 21.

The company is witnessing an upward trend in its stock price, prompted by its solid performance in the third quarter despite the pandemic-led business disruptions. A robust Invisalign portfolio also buoys optimism. Further, the company’s impressive international growth boosted market sentiments. However, a stiff competitive landscape and overdependence on Invisalign Technology System are concerning for the company.

Let's delve deeper.

Encouraging Q3 Performance

Align Technology’s impressive performance in the third quarter buoys optimism. Significantly higher sales of Invisalign clear aligners and iTero scanners amid the pandemic look encouraging. Impressive international performance across geographies and increased shipment volumes buoy optimism on the stock. Robust segmental performances and margin expansions bodes well for the stock. Latest partnerships like the agreement with the National Football League and a multi-year partnership deal with the New Orleans Saints in August, also seem strategic.

Other Growth Drivers

Invisalign Portfolio Expansion: Align Technology, in September, added the Steraligner aligner cleaning system to the Invisalign Doctor Site web store and InvisalignAccessories.com. The same month, Align Technology launched the Invisalign Stickables, which are innovative sticker accessories designed exclusively for use with the SmartTrack material in Invisalign clear aligners.

The company recently announced the global availability of its next-generation proprietary treatment planning software, ClinCheck Pro 6.0. Further, Align Technology has rolled out My Invisalign app and Virtual Care to various countries to enhance its digital footprint. Additionally, the company announced the Invisalign G8 predictability improvement with SmartForce Aligner Activation for both orthodontists and general practitioner dentists (“GP”), which is to be launched in the first quarter of 2021.

Impressive International Performance: Align Technology, during the third quarter, recorded significant Invisalign case volume uptick on a sequential basis in the international business. This was led by a significant increase in EMEA. Further, international shipments also surged on a year-over-year basis, reflecting increases in both EMEA and APAC. The EMEA region’s third-quarter volumes were up both sequentially and on a year-over-year basis, across all markets, with strong performances from the orthodontics and the GP channels.

The APAC region also recorded a sequential and year-over-year uptick in volumes, reflecting continued improvement within the region.

Downsides

Competitive Landscape: Align Technology’s operation in a highly competitive industry may induce headwinds. The company faces significant competition from traditional orthodontic appliance (or wires and brackets) players such as 3M’s Unitek. The company also competes with products similar to InvisAlign Technology. Align Technology has witnessed a continuous decline in average selling prices (“ASP”), primarily due to advantage rebate, promotional activity and product mix.

Overdependence on Invisalign Technology System: A major part of Align Technology’s total net revenues largely depends on the sale of its InvisAlign Technology System. This trend is expected to continue at least in the near future. However, management fears that if there is any drop in Invisalign Technology’s adoption faster than management’s expectations, it might hurt the company’s business heavily.  Also, if consumers prefer a rival product over InvisAlign Technology or if the ASP of the product falls, the company’s operating results will suffer a severe setback.

Zacks Rank & Other Key Picks

Currently, Align Technology carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks from the broader medical space are Hologic, Inc. HOLX, ResMed Inc. RMD and Thermo Fisher Scientific Inc. TMO.

Hologic’s long-term earnings growth rate is estimated at 17.4%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ResMed’s long-term earnings growth rate is estimated at 14.5%. The company presently carries a Zacks Rank #2.

Thermo Fisher’s long-term earnings growth rate is estimated at 18%. It currently carries a Zacks Rank #2.

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