The phenomenal growth story that is Align Technology
(ALGN - Free Report
) , makers of the revolutionary Invisalign clear teeth straighteners, continues to make early investors smile while apparently catching the majority by surprise.
In the past year, ALGN shares are up 155% vs the S&P 500 at +14%. That performance certainly made members of my Healthcare Innovators portfolio smile big where we owned the stock from $133 up to $333.
Now trading above $360, with an all-time high close of $370.10 hit on June 18, ALGN shares trade for over 75 times the consensus EPS estimate for this year of $4.73. And that explains why so many passed on boarding this one-way train to big gains.
What the majority missed was that the company's breakthrough dental technologies were going to maintain over 25% growth domestically and nearly 35% growth internationally as more dental professionals found the Invisalign system to be an extremely effective and highly desirable solution for their patients.
The Align Trajectory
Here's what I told my followers on May 28, a few days before we took some profits on our position...
One of our biggest success stories with Healthcare Innovators keeps on rolling based on the same catalysts that have kept us in the name every quarter since May of last year: wider adoption of the Invisalign technology by US consumers and dental professionals, low competitive threat, and 30%+ international growth.
The company held an Investor/Analyst Day on Wednesday (May 23) and wowed the crowd. Plus, competing products at this month's American Association of Orthodontists tradeshow were seen as limited in the type of malocclusions that can be treated, and many also lack supporting case management software for the orthodontist that is critical to the overall process in today's market.
The company provided long-term revenue guidance of 20%-30% growth, above expectations and the previous long-term guidance of 15%-25%. Key growth drivers remain in place from a geographic and product perspective and Align remains one of the most compelling growth stories in all of medical technology.
Here was a slide from the company presentation I posted on Twitter that captured the essence of the growth trajectory...
What got cut off on the bottom is the labels for the quarters. They are Q1'17, Q4'17, and Q1'18 so that you can see year-over-year and sequential growth as indicated by the brackets (in thousands of units shipped).
And the top row of numbers in green circles (5.2, 5.4, 5.4) are the Utilization rates, calculated by # of cases shipped / # of doctors to whom cases were shipped. This measure indicates the trajectory of dental professional adoption vs. just new physicians trying the product once or twice.
Now let's hear from some of the analysts who helped pop the stock above $310 on May 24...
Leerink Swann analyst Richard Newitter raised his price target for Align Technology from $305 to $360 saying he came away from the company's Analyst Day with increased confidence in the sustainability of its market-leading position in a still significantly underpenetrated clear aligner/orthodontic market opportunity.
Jefferies analyst Brandon Couillard raised his price target for Align Technology from $300 to $350 saying he left Wednesday's company presentation more confident in the durability of the company's competitive advantages. Align stands to benefit from the analog to digital shift underway in ortho dentistry.
And Stifel Nicolaus analyst Jonathan Block went ahead of the pack earlier in the week and raised his price target on ALGN from $320 to $350. He noted that ALGN shares had rallied since the AAO meeting and he believed additional upside existed, as investors would get more comfortable with Align's future growth, despite increasing competition, after the company updates at the Investor/Analyst Day.
Boy, Block nailed that call!
So why did I sell in the low $330s for nearly 150% gains -- and do I regret it?
First off, I sold because I thought the stock had moved really quickly to fulfill the best of expectations -- from $250 to $333, or over 33%, just in May!
So it was quickly back to trading over 70X EPS even with the new and improved growth guidance. And I thought it might "back-and-fill" for a little while between $310 and $340.
Boy, Cooker dropped that ball!
Do I regret it? Only a little. What I mean is that I achieved the bulk of the mission by caputuring the meat of the move. And we also booked a long-term gain in the Healthcare Innovators portfolio whereas we just traded it short-term in my TAZR portfolio and grabbed 57%.
But there is a wider lesson here about how bull markets work and why following long-term investors in great businesses in their early growth stages -- for 2-5 years to let the growth fully materialize -- really pays off. You can learn more about those ideas in this article I wrote recently...
Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and Healthcare Innovators services. Click Follow Author above to receive his latest stock research and macro analysis.
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