ALGN Case Study

JXM Case Study

Company: Align Technology, Inc. – ALGN

Run Date: 3/24/16 – priced at $70.23

 Invisalign-1-page-001

Company Background

Align Technology, Inc. designs, manufactures, and markets a system of clear aligner therapy, intra-oral scanners, and computer-aided design and computer-aided manufacturing (CAD/CAM) digital services. The company’s Clear Aligner segment offers Invisalign Full, a treatment used for a range of malocclusion; Invisalign Teen treatment that addresses orthodontic needs of teenage patients, such as compliance indicators, compensation for tooth eruption, and six free single arch replacement aligners; and Invisalign Assist treatment for anterior alignment and aesthetically-oriented cases. It also provides Invisalign Express (10 and 5) and Invisalign Lite/i7 treatments for orthodontic cases, non-comprehensive treatment relapse cases, or straightening prior to restorative or cosmetic treatments; Invisalign Go, a solution for general practitioner dentists (GPs) to identify and treat patients with mild malocclusion; SmileDirectClub aligners for minor tooth movement; custom clear aligner retainers used to maintain tooth position and correct minor relapse; and SmartTrack, a custom-engineered material that delivers force for orthodontic tooth movements. The company’s Scanners and Services segment offers iTero Scanner, a single hardware platform with software options for restorative or orthodontic procedures; and Restorative software for iTero, a software for GPs, prosthodontists, periodontists, and oral surgeons. It also provides Orthodontic software for iTero, a software for orthodontists for digital records storage, orthodontic diagnosis, Invisalign digital impression submission, and for the fabrication of printed models and retainers; CAD/CAM services, such as iTero Models and Dies, OrthoCAD iCast, and OrthoCAD iRecord; and Invisalign outcome simulator, a chair-side and cloud-based application for the iTero scanner, as well as third party scanners and digital scans for Invisalign treatment submission. The company was founded in 1997 and is headquartered in San Jose, California.  This background summary comes from yahoo.com.

JXM Background

ALGN was selected for this case study as a follow up to our recent LGND and ABMD reports.  ALGN shined brightly in our March 24th, 2016 stock run, maintaining a top 10 rank in every JXM stock measure.  The company made it through the JXM 75 and 24 with a 2nd overall rank in each.  The company also made it through JXM’s toughest secondary screener that isolates companies with superior Sum5, Sum7, Technical, Guru, and Rules scores. This selection criteria weeds out even the best companies and yields a success rate between 52% and 100%, depending on how long the stock is held (from 5 to 90 days).

JXM Report – The Basics

The following table (Figure 1) is a score card for ALGN from the March JXM stock report.  The table summarizes its JXM individual scores and ranks, along with the Sum7 and Sum5 scores of its top competitors.

Figure 1

ALGN1

ALGN is a consistent overall scorer in the JXM database, winning one category, placing in the top 5 in two others, and never falling outside of the top 10.  This well rounded performance earned it 3rd place in the Sum5 score and 2nd in the Sum7 score.  Unlike LGND and ABMD, it also received a positive New Growth score.

JXM Report – The Heart

The follow table (Figure 2) summarizes the heart of the JXM database, with highlights of levels 1-6.  ALGN is amazingly consistent across all levels with few obvious weaknesses.

Figure 2

ALGN2.png

ALGN shows a workmanlike competence in its Fundamental scorecard, winning no categories but never falling outside of the top 15.  It does well against its industry and sector and boasts strong profitability.  The fact that the company does not dominate this sector is not a worry considering the strength of its run competitors and an acceptable 47% score.

ALGN places 9th with a technical score of 65%, backed with buy opportunities in the short and medium term, placing above its 20 and 200 sma, and displaying steady price growth.  Like the other stocks we have looked at, there are few warning signs with this data.  And with an overall score that sits in our sweet spot, the JXM remains impressed.

ALGN has a solid 78% score in valuation in a tightly grouped field, placing 7th among its peers while scoring only 3% better than ABMD, who ranked 13th.  This shows that the stock prices of the top competitors in this field are universally undervalued.  As for ALGN, analysts believe there is potential stock growth of 8-10%.  The negative JXM valuation calculations for Upper and Lower potential and FCFE are less then ideal.  However, the competitive overall valuation score encourages the JXM team.

The Guru score for ALGN is a robust 64%, high enough to earn it 1st place in this category. Most of our experts feel the same about this stock as the JXM database.

The Rules score for ALGN is an outstanding 83%, high enough to place 2nd in this.  It passes nearly all of our most important rules, with no debt along with consistent revenue growth, and healthy cash flow.  Its only weakness is high institutional ownership, suggesting that the overall market is also aware of this stock.

In JXM Growth, like other levels, ALGN is a solid but not spectacular performer with a 14% composite growth score.  All 4 measures that the JXM considers are either growing or steady.

Price Potential

The following table and chart (Figure 3) shows the historic price movement of ALGN.  The table shows the 5 and 10 year average price movement after the March 24th stock run, while the table shows the average monthly movement over 10 years.

Figure 3

ALGN3

The 5 and 10 year average display little down-side risk to this stock, with huge upswing potential (especially in April).

Price Movement

The March ALGN run and healthcare in general were extremely strong, with LGND, ALGN, TECH and ALGN all able to emerge from JXM’s toughest secondary screener.  All four companies had very strong price performance after the run.  The following table (Figure 4) is a summary these results measured at 5, 10, 15, 30, 45, 60, 75, and 90 day intervals starting from the date of the run.

Figure 4

Date Ticker 5 10 15 30 45 60 75 90
3/24/16 ABMD 2.8% 6.6% 6.2% 12.4% 4.8% 7.1% 15.1% 12.3%
3/24/16 ALGN 3.2% 4.0% 4.0% 5.2% 6.4% 10.2% 12.3% 14.5%
3/24/16 LGND 2.3% 8.2% 13.4% 27.0% 16.3% 16.4% 12.4% 11.0%
3/24/16 TECH -1.1% 0.5% -2.1% -0.2% 6.2% 10.9% 19.2% 17.4%
Average 1.78% 4.80% 5.41% 11.09% 8.39% 11.13% 14.76% 13.79%

As can be seen from this run, all four companies posted strong price movement, with only TECH displaying short-term price weakness.  ALGN shows almost linear growth with few pullbacks – again workmanlike stock growth to match its JXM performance.

The following chart (Figure 5) shows the stock price versus the S&P 500, with a circle marking the stock run date.

Figure 5

ALGN4

As can be seen from Figure 5, ALGN experienced stead stock growth while showing a nice independence from the S&P 500.

Conclusion

ALGN was a consistent performer but dominated few areas of the March 2016 stock analysis.  Although not exciting, ALGN boasted a perfect display of the JXM database.  It didn’t need to dominate because it was a strong performer across the board; a strength displayed by its top two placement in both Sum5 and 7 scores.  ALGN proves that the savvy JXM investor can’t focus on only one level…. Strength is a numbers game and the Sum5 and 7 lead the charge.  An investor that heeded this advice and invested in ALGN would have been richly rewarded.

Future

Within the next few days, we will post more recent ALGN stock runs as well as one from May 9th, 2017.  Please come back to learn more about the future gems unearthed by the tried and true method employed by JXM database.

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