It's been a great morning session for Align Technology investors, who saw their shares rise 2.5% to a price of $268.21 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Align Technology's P/B and P/E Ratios Are Higher Than Average:
Align Technology, Inc. designs, manufactures, and markets Invisalign clear aligners, and iTero intraoral scanners and services for orthodontists and general practitioner dentists in the United States, Switzerland, China, and internationally. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 30.21 and an average price to book (P/B) ratio of 4.08. In contrast, Align Technology has a trailing 12 month P/E ratio of 56.9 and a P/B ratio of 5.4.
When we divideAlign Technology's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.73, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Increasing Revenues but Narrowing Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $1,966 | $2,407 | $2,472 | $3,953 | $3,735 | $3,807 |
| Revenue Growth | n/a | 22.39% | 2.71% | 59.9% | -5.51% | 1.94% |
| Operating Margins | 24% | 23% | 16% | 26% | 17% | 15% |
| Net Margins | 20% | 18% | 72% | 20% | 10% | 10% |
| Net Income (MM) | $400 | $443 | $1,776 | $772 | $362 | $363 |
| Net Interest Expense (MM) | $9 | $12 | $3 | $33 | $5 | $15 |
| Depreciation & Amort. (MM) | $55 | $79 | $94 | $109 | $126 | $142 |
| Earnings Per Share | $4.92 | $5.53 | $22.41 | $9.69 | $4.61 | $4.72 |
| EPS Growth | n/a | 12.4% | 305.24% | -56.76% | -52.43% | 2.39% |
| Diluted Shares (MM) | 81 | 80 | 79 | 80 | 78 | 73 |
| Free Cash Flow (MM) | $331 | $747 | $662 | $771 | $277 | $686 |
| Current Ratio | 1.88 | 1.68 | 1.4 | 1.3 | 1.26 | 1.27 |
Align Technology has growing revenues and a flat capital expenditure trend, low leverage, and decent operating margins with a negative growth trend. However, the firm has irregular cash flows. Finally, we note that Align Technology has flat EPS growth.
