Align Technology Inc (ALGN, Financial) has experienced a significant daily loss of -6.24% and a 3-month loss of -51.9%. Despite these losses, the company's Earnings Per Share (EPS) stand at 4.72. This raises the question: is Align Technology (ALGN) significantly undervalued? In this article, we delve into an in-depth analysis of the company's valuation, financial strength, profitability, and growth. We invite you to read on and gain valuable insights into Align Technology's true market value.
Company Overview
Align Technology Inc is a leading manufacturer of clear aligners, dominating over 90% of the market with its main product, Invisalign. The company has treated over 14 million patients since its launch and treated over 2 million cases in 2022 alone. Alongside Invisalign, Align Technology also sells iTero intraoral scanners, which capture digital impressions of patients' teeth and illustrate treatment plans. As of October 30, 2023, Align Technology's stock price stands at $179.03, while its GF Value, an estimation of fair value, is $389.57. This discrepancy suggests that the stock may be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that denotes a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. 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.
Align Technology (ALGN, Financial), with a market cap of $13.70 billion, is believed to be significantly undervalued based on GuruFocus' valuation method. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Align Technology has a cash-to-debt ratio of 13.03, ranking better than 71.48% of 831 companies in the Medical Devices & Instruments industry. Its overall financial strength is 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Align Technology, with a profitability rank of 10 out of 10, has been profitable for the past 10 years. Over the past twelve months, the company had a revenue of $3.80 billion and an operating margin of 15.65%, ranking better than 76.84% of companies in the industry.
Growth is a critical factor in the valuation of a company. Align Technology's 3-year average annual revenue growth is 16.6%, ranking better than 70.94% of companies in the industry. Its 3-year average EBITDA growth rate is 10.3%, ranking better than 52.96% of industry peers.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Align Technology's ROIC is 7.49, and its WACC is 12.84.
Conclusion
In summary, the stock of Align Technology (ALGN, Financial) is believed to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 52.96% of 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, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
