Align Technology Inc (ALGN, Financial) recently displayed a daily gain of 4.16% and an Earnings Per Share (EPS) (EPS) of 4.72. However, over the past three months, the stock has suffered a loss of 38.57%. These contrasting figures raise an important question: Is Align Technology significantly undervalued? This article delves into a valuation analysis to explore the true worth of Align Technology's stock. Read on for a detailed examination of the company's financial health and market potential.
Company Overview
Align Technology Inc (ALGN, Financial) has revolutionized dental care with its leading product, Invisalign, which has garnered FDA approval and overwhelmingly dominates the clear aligner market. With a commanding market share of over 90% and the capacity to address 90% of malocclusion cases, Invisalign has treated more than 14 million patients since its inception. Align Technology also offers iTero intraoral scanners, which are instrumental in creating digital impressions for treatment planning. The company's digital approach is evident, with more than half of Invisalign cases involving iTero scans. This technological edge, combined with a strong market presence, sets the stage for evaluating Align Technology's financial valuation in comparison to its GF Value, an estimate of the stock's fair value.
Understanding the GF Value
The GF Value is a unique metric that represents the intrinsic value of a stock, combining historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a benchmark for fair trading value. Should the stock price significantly exceed this line, the stock might be overvalued, potentially leading to poor future returns. Conversely, a price well below the GF Value Line suggests undervaluation and the possibility of higher future returns.
Align Technology (ALGN, Financial) displays every indication of being significantly undervalued according to the GF Value. With the stock priced at $215.24 per share, it sits well below the GF Value of $374.2, suggesting that the long-term return of its stock could surpass its business growth, offering an attractive opportunity for investors.
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Financial Strength Assessment
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial robustness. Align Technology's cash-to-debt ratio of 10.13 ranks favorably within its industry, and its overall financial strength score is a solid 8 out of 10, reflecting a strong financial condition.
Profitability and Growth Prospects
A company's profitability is crucial for assessing investment risk. Align Technology has maintained profitability over the past decade, with a significant operating margin of 15.65%, ranking well within its industry. The company's profitability score is a perfect 10 out of 10. In terms of growth, Align Technology's 3-year average revenue growth rate surpasses that of most industry peers, further solidifying its position as a valuable investment.
ROIC vs. WACC Analysis
Evaluating Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to its capital costs. Align Technology's ROIC of 7.48 is currently below its WACC of 14.94, which suggests that the company needs to improve its capital efficiency to enhance shareholder value.
Conclusion and Investment Considerations
In conclusion, Align Technology (ALGN, Financial) appears to be significantly undervalued, offering a potentially attractive investment opportunity. The company boasts a strong financial position and robust profitability, with growth rates that outperform many competitors in the Medical Devices & Instruments industry. For a more detailed financial overview, investors are encouraged to review Align Technology's 30-Year Financials.
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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.
