Align Technology Inc. Valuation – November 2015 Update $ALGN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Align Technology Inc. (ALGN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Align Technology, Inc. (Align) is a medical device company. The Company 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 for dentistry, orthodontics, and dental records storage. The Company operates through two segments: Clear Aligner, known as the Invisalign system, and Scanners and Services, known as the iTero intraoral scanner and OrthoCAD services. The Company’s Clear Aligner segment provides malocclusion and orthodontic treatment. The Company’s Scanners and Services Segment offers iTero intraoral scanner, which utilizes laser and optical scanning to capture the contours of the patient’s dentition, gingival structures and the bite. It distributes products directly to customers, including orthodontists and general practitioner dentists (GPs), as well as to restorative dentists, including prosthodontists, periodontists and oral surgeons.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of ALGN – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,127,114,998 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.91 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 274.34% Pass
6. Moderate PEmg Ratio PEmg < 20 48.21 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.55 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ALGN value Chart November 2015

EPSmg $1.34
MG Growth Estimate 15.00%
MG Value $51.51
Opinion Overvalued
MG Value based on 3% Growth $19.40
MG Value based on 0% Growth $11.37
Market Implied Growth Rate 19.85%
Current Price $64.50
% of Intrinsic Value 125.21%

Align Technology Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, lack of dividends, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.63 in 2011 to an estimated $1.34 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 15% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Align Technology Inc. (ALGN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ALGN Charts November 2015

Net Current Asset Value (NCAV) $5.31
Graham Number $19.41
PEmg 48.25
Current Ratio 2.91
PB Ratio 6.56
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Total Current Assets $711,733,000
Total Current Liabilities $244,511,000
Long-Term Debt $0
Total Assets $1,079,562,000
Intangible Assets $79,715,000
Total Liabilities $281,303,000
Shares Outstanding (Diluted Average) 81,092,000

Earnings Per Share History

Next Fiscal Year Estimate $1.68
Dec14 $1.77
Dec13 $0.78
Dec12 $0.71
Dec11 $0.83
Dec10 $0.95
Dec09 -$0.45
Dec08 $1.18
Dec07 $0.50
Dec06 -$0.55
Dec05 $0.02
Dec04 $0.14
Dec03 -$0.35
Dec02 -$1.52
Dec01 -$2.61
Dec00 -$25.64
Dec99 -$3.65

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.34
Dec14 $1.11
Dec13 $0.71
Dec12 $0.67
Dec11 $0.63
Dec10 $0.46
Dec09 $0.19
Dec08 $0.43
Dec07 $0.02
Dec06 -$0.30
Dec05 -$0.40
Dec04 -$2.41
Dec03 -$4.71
Dec02 -$6.82
Dec01 -$8.44
Dec00 -$9.52
Dec99 -$1.22

Recommended Reading:

Other ModernGraham posts about the company

Align Technology Analysis – Initial Coverage $ALGN

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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