Align Technology Inc Valuation – May 2016 $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 Companies Benjamin Graham Would Invest In Today – March 2016.  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. 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 used in dentistry, orthodontics and dental records storage. The Company operates through two segments: Clear Aligner segment and Scanner and Services (Scanner) segment. The Clear Aligner segment consists of its Invisalign System, which includes Invisalign Full, Express/Lite, Teen, Assist and Vivera Retainers, along with its training and ancillary products for treating malocclusion. The Scanner segment consists of intra-oral scanning systems and other services available with the intra-oral scanners that provide digital alternatives to the traditional cast models. The Company’s iTero scanner is used by dental professionals, and labs and services for restorative and orthodontic digital procedures, as well as Invisalign digital impression submission.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of ALGN – May 2016

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 $6,057,308,498 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.85 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 358.54% Pass
6. Moderate PEmg Ratio PEmg < 20 45.17 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.91 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 2.85 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 Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ALGN value Chart May 2016

EPSmg $1.68
MG Growth Estimate 15.00%
MG Value $64.58
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $24.32
MG Value based on 0% Growth $14.26
Market Implied Growth Rate 18.34%
Current Price $75.77
% of Intrinsic Value 117.33%

Align Technology, Inc. is suitable 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, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.67 in 2012 to an estimated $1.68 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.34% 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.

Align Technology, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

ALGN Charts May 2016

Net Current Asset Value (NCAV) $5.75
Graham Number $0.00
PEmg 45.23
Current Ratio 2.85
PB Ratio 6.92
Dividend Yield 2.84%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information Mar2016
Total Current Assets $783,003,000
Total Current Liabilities $274,750,000
Long-Term Debt $0
Total Assets $1,207,560,000
Intangible Assets $78,606,000
Total Liabilities $315,530,000
Shares Outstanding (Diluted Average) 81,320,000

Earnings Per Share History

Next Fiscal Year Estimate $2.10
Dec2015 $1.77
Dec2014 $1.77
Dec2013 $0.78
Dec2012 $0.71
Dec2011 $0.83
Dec2010 $0.95
Dec2009 -$0.45
Dec2008 $1.18
Dec2007 $0.50
Dec2006 -$0.55
Dec2005 $0.02
Dec2004 $0.14
Dec2003 -$0.35
Dec2002 -$1.42
Dec2001 -$2.57
Dec2000 -$25.64
Dec1999 -$3.65

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.68
Dec2015 $1.37
Dec2014 $1.11
Dec2013 $0.71
Dec2012 $0.67
Dec2011 $0.63
Dec2010 $0.46
Dec2009 $0.19
Dec2008 $0.43
Dec2007 $0.02
Dec2006 -$0.29
Dec2005 -$0.39
Dec2004 -$2.38
Dec2003 -$4.67
Dec2002 -$6.77
Dec2001 -$8.42
Dec2000 -$9.52

Recommended Reading:

Other ModernGraham posts about the company

Align Technology Inc. Valuation – November 2015 Update $ALGN
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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