Is Align Technology Stock A Buy?

Align Technology, Inc. (NASDAQ:ALGN) isn’t the first company you’d think would become the star of the coronavirus pandemic. The 3D orthodontics manufacturer and creator of Invisalign hit the jackpot in late October though, when it snagged two big celebrity endorsements for its Clear Aligner cases.

TikTok It Girl Charli D’Amelio and “Black-ish” star Marsai Martin covered a broad young audience and gained 35 percent market value for the company. This has prospective investors wondering – is Align Technology stock a Buy?

D’Amelio alone promotes the company’s brands to over 94 million TikTok and 31 million Instagram followers. This helped Clear Aligner sales grow 26 percent from the prior year. It’s up over 60 percent for the year and has been hovering between $400 and $500 per share.

Is this success sustainable for a stock that’s been a roller coaster ride over the past few years?

Invisalign Is The #1 Revenue Driver For Align Tech

Invisalign is the big driver of the company’s revenue and stock price.

If you’re unfamiliar, Invisalign is a clear-aligner treatment that uses a transparent plastic to replace a retainer or braces. An orthodontist creates a 3D digital model of your teeth, which is then used to as dimensions for a 3D printed mouth brace.

The aligners are classified by the U.S. Food and Drug Administration as Class II medical devices and are widely prescribed by dental professionals to help with misaligned teeth and even overbite/underbite issues. Still, braces and other devices/procedures may be necessary in more serious cases, so this treatment isn’t for everybody.

In fact, the treatment wasn’t for anybody when the coronavirus pandemic hit, and stay-at-home orders were issued. Straight teeth were the last worry on anyone’s mind while socially distancing and wearing masks.

That was until D’Amelio’s sponsorship, along with what the company calls the “Zoom effect (essentially people have to stare at themselves on Zoom more often than ever before, making them self-conscious),” kicked things into high gear.

Is Align Technology Stock A Buy?

Align Technology was founded in 1997 and had its initial public offering (IPO) on January 26, 2001, offering 10 million shares at $13.00 apiece.

When the COVID-19 crisis crashed the stock market, it dropped to a 52-week low of $127.88 per share. By summer 2020, ALGN’s price returned to the $300-per-share range.

Of course, by late October, the brand was a bona fide TikTok sensation, alongside the biggest in the game. This shot the price above $500 briefly before settling into the $450 range heading into the holiday season. It puts the company’s market cap over $35 billion, with a P/E ratio of 20x.

There’s no doubt that buying at this point in the game is riskier than it was earlier in the year. The company did report a 21-percent increase in revenue at $734 million, with adjusted net income of $2.25 per share.

It blew analyst expectations out the water, but the stock price already seems to have topped out from the boost. It’s going to need more than a couple of young celebrity faces to grow its market.

A discounted cash flow forecast analysis places the fair market value of the current ALGN share price at $397. Prices above that level would signal the company is overvalued.

Risks Of Buying Align Technology Stock

Invisalign already saw sales drop because of the coronavirus. While it recovered by the third quarter, it’s unclear how long that’ll last.

The United States and the rest of the world is bracing for another coronavirus resurgence during the 2020-2021 flu season. The winter period is likely to be largely virtual, and face-to-face interactions have been drastically reduced.

On top of this, progress in the overall economy will likely be tough sledding in 2021. A new President is taking control of fiscal policy as the pandemic eviction and foreclosure protections run dry.

These events, along with an escalating global trade war, could cause an economic recession and some are even forecasting a depression.

Should this occur, it’s unclear how important straight teeth will remain. These $3,000-$7,000 treatments are expensive and could find themselves slashed from corporate health insurance plans.

After the boosts from TikTok and Instagram wane, Align could face trouble. And then there’s the competition.

Invisalign Vs ClearCorrect: Competition Is Stiff

Invisalign has a great brand name, but it’s not the only invisible teeth aligner. ClearCorrect is a direct competitor in that market, as are Dandy and Uniform Teeth.

Many offer not only alternative products (which really isn’t a proprietary technology) but also alternative payment options. And that’s just the competition in the small niche the company serves in dentist offices.

There are also online alternatives, like SmileDirectClub. For $89 per month, this teledentistry company could have cracked the orthodontic subscription model, allowing you the same essential service in a different pricing model that can be done either in-office or at home.

In a social distancing age, the ability to create personalized molds of your teeth and receive custom orthodontics is a big win for introverted consumers. Of course, there’s also braces, retainers, and other methods of straightening teeth consumers could use.

Is Align Technology Stock a Buy? The Bottom Line

Align Technology recovered from the coronavirus and then gained 35 percent on its market cap to appease investors by year end.

This came on the back of more people staring at themselves in virtual meetings, along with celebrity endorsements from some of the hottest social media influencers. The boosted stock price puts it in a precarious position for investors who jump on board now though.

It already lost 10 percent off its peak value in October, and the company struggles to reach and sustain a $500 share price.

If you already have Align Technology, selling right now isn’t the worst idea. Holding carries a little more risk, and buying right now is the riskiest money.

If you don’t already have some, there are better investments on the market right now – particularly given the current ALGN stock price is higher than the intrinsic value of the company at the time of research.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.