Should Investors Wait to Speculate on Align Stock's Pullback?

ALGN has increased 107% over the past year

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Align Technology, Inc. (NASDAQ:ALGN) is a global medical device company and manufacturer of clear aligners used in orthodontics. ALGN manufactures the aligners in Juarez, Mexico and its scanners in Israel and China. Align designs, manufactures, and offers its Invisalign system of clear aligners, iTero intraoral scanners and services, and exocad CAD/CAM software. ALGN has also helped dentists treat approximately 10.9 million patients with their Invisalign system.

Align stock has increased nearly 107% year-over-year, with underlying support at the 120-day moving average capturing its pullback from its Sept. 23 all-time high of $737.45. The stock is off 1.5% at $652.41 today, but still boasts a 22% lead for the year.

algn oct 4

On Friday, Oct. 1, Align Technology announced that its senior leadership team will be reporting its third quarter of 2021 financial results on Wednesday, Oct. 27, after the close of the markets. ALGN has outperformed earnings expectations on all four of its most recent earnings reports.

For Q3 of 2020, Align Technology beat analysts’ estimates by a margin of $1.61, reporting an EPS of $2.25. For Q4 of 2020, Align's EPS increased to $2.61, beating expectations by a margin of $0.47. For Q1 of 2021, ALGN posted a decrease in earnings, dropping to $2.49 per share. However, the medical device company still beat estimates by a margin of $0.47. For Q2 of 2021, Align Technology reported an EPS of $3.04 and beat expectations by a margin of $0.51. Analysts have ALGN's EPS coming in at $2.60 for the upcoming earnings report.

Fundamentally speaking, Align Technology stock investors are undoubtedly paying a premium at the ALGN's current valuation. Align stock trades at a sky-high price-earnings ratio of 81.29. ALGN also has an inflated forward price-earnings ratio of 54.05.

Nonetheless, Align stock's estimated forward price-earnings indicates an expected increase in earnings, which is in line with the medical device company’s growth over the past year. Since fiscal 2017, Align Technology's revenues have increased 136% and its net income is up 202%. Overall, Align Technology’s strong growth rate has served as a catalyst to push its valuation up so high. However, investors may be best suited potentially waiting for a better entry price, with Align stock seemingly experiencing a short-term pullback that may continue.

 

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