Unveiling Align Technology (ALGN)'s Value: Is It Really Priced Right? A Comprehensive Guide
The stock of Align Technology Inc (NASDAQ:ALGN) has seen a daily loss of -1.72% and a 3-month loss of -15.35%. Despite these losses, with an Earnings Per Share (EPS) of 4.07, the question arises: Is the stock significantly undervalued? This article aims to answer this question by providing an in-depth analysis of Align Technology's valuation. We encourage you to read on to discover the hidden value in this stock.
Company Introduction
Align Technology is the leading manufacturer of clear aligners. Its main product, Invisalign, approved by the FDA in 1998, controls over 90% of the market. Invisalign can treat roughly 90% of all malocclusion cases (misaligned teeth), and there are over 230,000 Invisalign-trained dentists and orthodontists. In 2022, Invisalign treated over 2 million cases, or roughly 10% of all orthodontic cases for the year, and it has treated over 14 million patients since its launch. Align also sells intraoral scanners under the brand iTero, which captures digital impressions of patients' teeth and illustrates treatment plans. Over 85% of Invisalign cases are submitted by digital scans and iTero scans make up over half of these scans.
The following image provides the income breakdown of Align Technology:
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
The stock of Align Technology (NASDAQ:ALGN) shows every sign of being significantly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 286.68 per share, Align Technology stock shows every sign of being significantly undervalued.
Because Align Technology is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Company's Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Align Technology has a cash-to-debt ratio of 7.55, which which ranks better than 65.99% of 832 companies in the Medical Devices & Instruments industry. The overall financial strength of Align Technology is 8 out of 10, which indicates that the financial strength of Align Technology is strong.
This is the debt and cash of Align Technology over the past years:
Profitability and Growth
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Align Technology has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.70 Bil and Earnings Per Share (EPS) of $4.07. Its operating margin is 15.34%, which ranks better than 76.09% of 828 companies in the Medical Devices & Instruments industry. Overall, the profitability of Align Technology is ranked 10 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Align Technology is 16.6%, which ranks better than 70.88% of 728 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth rate is 10.3%, which ranks better than 53.29% of 730 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Align Technology's ROIC is 6.78 while its WACC came in at 12.75.
The historical ROIC vs WACC comparison of Align Technology is shown below:
Conclusion
In conclusion, the stock of Align Technology (NASDAQ:ALGN) shows every sign of being significantly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 53.29% of 730 companies in the Medical Devices & Instruments industry. To learn more about Align Technology stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
