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Anatomy of Success: Align Technology (ALGN)

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The Zacks Rank system is the premier metric used to identify how a stock is expected to trade over the next 1-3 months.  Specifically, a company that receives a Zacks Rank #1 (Strong Buy) designation is expected to be one of the best performing stocks over the near term as only the top 5% receive this unique rating.  This system helps find companies both big and small, and has a proven track record of positive returns.  

Further, this ranking system helps you stay in these top companies while they continue to appreciate in value past the initial 1-3 month investment horizon.  Below is an example of how this system identifies a growing company, and by following the Zacks Rank system, enables you to stay in the stock beyond the three month time frame to realize significantly outsized gains.  

Example: Align Technology (ALGN - Free Report)

Align Technology (ALGN - Free Report) , designs, manufactures and markets the Invisalign System, a proprietary method for treating malocclusion. The System corrects malocclusion using a series of clear, removable appliances that gently move teeth to a desired final position. Because it does not rely on the use of metal or ceramic brackets and wires, the System significantly reduces the aesthetic and other limitations associated with braces. The Invisalign System also offers orthodontists a new means of carrying out their diagnosis and treatment planning processes.

On May 5th 2017, Align received a Zacks Rank #1 (Strong Buy) designation after their record breaking Q1 17 quarterly results on April 27th 2017.  The company saw Invisalign case shipments improve by +27.1% YoY, and revenues increase by +30% YoY.  Further, management commented that they expected revenue growth to be up +26-28% YoY for Q2 with shipments growing another +25-27% YoY.  This news caused analysts to increase their target prices for Q2, and FY 17.  The stock closed at $138.03 on May 5th.

Over the next two quarters, the company posted better than expected revenues and shipments (both beating and setting new company records).  Moreover, management expected shipments to improve by +30% YoY, and revenues to continue to grow in the high +20% levels on a year over year basis.  As you would expect, analysts raised their target prices after each quarterly report.  This of course caused the Zacks consensus earnings and revenue estimates to move upwards as well.  

Three months after receiving the Zacks Rank #1 (Strong Buy) rating (just after posting Q2 results), the stock price closed at $174.01 (August 7th) a +26.1% gain.  The stock price jumped again after its Q3 earnings report (October 26th) to $202.98, a +47.1% gain.  And as of November 24th, the stock price closed at $254.76, a +85% gain from May 5th when it first became a Rank #1.  

The table below shows the price performance of ZAGG (in green), and the 12 month forward looking EPS estimate (in red) from when it became a Zacks Rank #1.

Overall, by utilizing the Zacks Ranking system, you can easily identify the elite stocks which are best positioned to beat the market on a consistent basis, and how to stay in those top stocks as they continue to grow.

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