Align Technology Inc. (ALGN, Financial) has recently experienced a daily gain of 2.64% and a three-month gain of 16.89%. The company's Earnings Per Share (EPS) stand at 4.07. However, the question remains - is the stock modestly undervalued? This article aims to answer this question through a comprehensive valuation analysis.
Company Overview
Align Technology is the leading manufacturer of clear aligners, with its main product, Invisalign, controlling over 90% of the market. The company has treated over 14 million patients since its launch and continues to dominate the market. Despite a share price of $351.63, the GuruFocus fair value (GF Value) estimate stands at $490.36, suggesting that Align Technology (ALGN, Financial) may be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future returns may be higher.
Align Technology (ALGN, Financial), with a market cap of $26.90 billion, appears to be modestly undervalued according to GuruFocus' valuation method. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before deciding to purchase shares. Align Technology has a cash-to-debt ratio of 7.55, ranking better than 65.31% of companies in the Medical Devices & Instruments industry. Overall, the financial strength of Align Technology is robust.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Align Technology has been profitable for 10 years over the past 10 years, with revenues of $3.70 billion and Earnings Per Share (EPS) of $4.07 in the past 12 months. Its operating margin of 15.34% is better than 74.88% of companies in the Medical Devices & Instruments industry.
Growth is a critical factor in the valuation of a company. The 3-year average annual revenue growth rate of Align Technology is 16.6%, ranking better than 71.09% of companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth rate is 10.3%, ranking better than 53.44% of companies in the industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Align Technology's ROIC was 6.78, while its WACC came in at 12.02.
Conclusion
In summary, the stock of Align Technology (ALGN, Financial) appears to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 53.44% of companies in the Medical Devices & Instruments industry. To learn more about Align Technology stock, check out its 30-Year Financials here.
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