ALGN 2017 update

JXM Stock Report

Company: Align Technology, Inc. – ALGN

Known for its Invisalign product offering, specializing primarily in orthodontics.

Run Date: 5/11/17

ALGN – the JXM history

As previously posted, ALGN was the highlight of our intensely scrutinized March 24, 2016 JXM Stock Report of the Healthcare sector.  This run was unique in that it unearthed many dominant JXM scorers such as ALGN, ABMD, LGND, and TECH.  We continue to focus on Align because it comes with a back story that only JXM can tell.

ALGN first entered our radar on May 22, 2014, as a little know company that placed a mere thirteenth among its JXM competitors, priced at a bargain of $52.54.  The future giant peaked our interest a little over a year later when it moved into second place in our May 29, 2015 Healthcare report, at a price of $60.83.  The hits kept coming.  In our now infamous March 24, 2016 stock report, ALGN again placed second in our scoring system at a still bargain price of $70.23.  It maintained its second place ranking in our September, 16, 2016 stock report, STILL at a bargain price of $93.84.  Today, Align sits at the rock star price of $137.01.

The benefit of hindsight allows us to reflect on the lost chance to purchase this stock in spring of 2014.  However, a clear purchase opportunity was revealed a year later, when ALGN improved its score from thirteenth all the way to second.  The savvy JXM investor, who is always on the lookout for such a score increase, would have jumped at the entry price of $60.83.  Backed by the consistent support of our scoring system, this educated investor would have confidently ridden a 125% gain in just two years.

The question now, is it too late to get on the bandwagon or simply time to cash in on our gains?

ALGN – 5/11/17 Scorecard

The following table (Figure 1) is a score card for ALGN from our most recent Healthcare stock report, executed on May 11, 2017.  The table summarizes its JXM individual scores and ranks, along with the Sum7 and Sum5 scores of its top competitors.

Figure 1algn1.png

Aside from the obvious dominance of ALGN, it is interesting to note the differences between this report card and the one previously posted from March 2016.  ABMD and LGND have dropped down the score card a bit and TECH is no longer in the top 10.  Conversely, ALGN is actually stronger in nearly every category of the JXM database compared to its March 2016 performance.  It wins three categories (versus 1), places in the top 5 in two others (unchanged), and maintains positive growth scores (though dropping from the top 10).  This well rounded performance earns it 1st place in the Sum5 score (2nd before) and 2nd in the Sum7 score (unchanged).

Although Healthcare appears to be a strong sector as measured by these overall scores, it is very top heavy, and ALGN is the only company that continues to pass our strictest secondary screening criteria.  While it’s worth a reminder that these stocks happen to carry >52% success rate in any given time frame, the competition isn’t nearly as dominant as it was in past reports.

JXM Report – The Heart

The follow table (Figure 2) summarizes the heart of the JXM database, with highlights of levels 1-6.  Again, dominance of ALGN shows through.

Figure 2

algn2.png

As it did in 2016, ALGN shows a workmanlike competence in its Fundamental scorecard, placing third overall without winning a single category.  This stock relies on consistency, placing in the top 10 in every measure except valuation while placing in the top 5 in 6 others.  It even improved its overall score from 47% to 62%.  This is a nice improvement, but the low valuation score suggests there could be some price weakness down the road.

The technical score for JXM is an astounding 85%, boosted by its recent price surge as well as its short, medium, and long-term outlook.  It is certainly a healthy stock with tremendous momentum.  However, a higher score isn’t always better.  Level 2 actually looks for a sweet spot of which ALGN is sitting slightly above.  This level will be closely watched moving forward.

ALGN appears to have a solid 70% score in valuation, placing 3rd among its peers.  However, analysts project a relatively meager 7% upside while the company continues to have negative Upper, Lower, and FCFE valuation.  It is concerning that these weak valuation measures, resulting an 8% drop in score from 2016, still place the stock in 3rd place.  This actually suggests that the healthcare sector is no longer universally undervalued.

The good news is that the Guru score for ALGN is a robust 69%, high enough to earn it 1st place in this category and a nice increase from its 2016 score.  Most of our experts continue to feel the same way about this stock as the JXM database.

The Rules score for ALGN is an outstanding 89%, high enough to place 1st in this level and again an improvement from 2016.  It passes nearly all of our most important rules, with no debt along with consistent revenue growth, strong profitability, and a solid return on equity. Its only weaknesses are its negative cash flow and high institutional ownership.  At this point we know the market is also aware of this stock.

In JXM Growth, ALGN continues to be a solid but not spectacular performer with a 15% composite growth score.  Of the 4 measures that JXM considers, only cash flow is showing negative growth.  While a drop in cash flow is sometimes a positive sign for a growing company, this may not be the case for an established one like ALGN.

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 from the May 11th stock run projected 90 days into the future.  The chart simply shows the average monthly movement over 10 years.

Figure 3

algn3.png

The 5 and 10 year average display little down-side risk to this stock, with huge upswing potential.  While the monthly history suggests a purchase in late August, the 5 and 10 year tables show few clear warning signs that would scream sell.

The Charts

The following two charts show a monthly and hourly look at ALGN

algn4.png

The monthly view shows how each candle is trading per month.  This displays how strong the trend has been here ever since the 2008 crisis where this stock bottomed around $4.  Every major dip back to the trend line has been bought but lately it’s been more parabolic.  This makes it harder to get in and out but a positive sign for the longer term holder.

algn5.png

The hourly view has a much more zoomed in look, where each candle is 60 minutes long.  This shows that price has been trading in a triangle and is now compressing towards the apex.  Something will give sooner or lately and if it breaks north, the $145 level should get tested again.  If it breaks down, first stop would be to re-test that gap support where buyers would tend to arrive at first go around.

Conclusion

Overall, ALGN is more powerful performer in this run than it was in our 2016 stock analysis.  It has continued to lead the charge in our all-important Sum 5 and Sum 7 scoring system and again made it through our select screener.  While its key 2016 competitors faltered, ALGN has maintained it strength.  Further, the Invisalign product line has become a common name in my neighborhood and the need for dental care certainly doesn’t show any signs of shrinking.  These attributes have proven highly successful in JXM’s past.  On the surface, Align is a clear purchase.

A further look under the hood does point to some warning signs.  First, ALGN is dominating a much weaker class than it did in 2016.  Second, its technical score is trending a bit hot.  Third, its valuation is catching up to its price.  Finally, its charts do not provide any clear short-term direction.  These caveats suggest that ALGN’s recent dominate JXM scores could be a bit misleading.

In spite of these warning signs, one should focus on the entire body of evidence and trust the JXM process.  That being said, we would not blame the investor who takes a wait and see approach through the summer and reevaluates in early August.  When the kids get back to school, this monster may be keyed for another awakening.

Future

In the near future we will look at the Healthcare ETF and run an Industry based analysis of ALGN instead of the more general Sector run discussed above.

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