Align Technology (NASDAQ:ALGN) is disrupting the market for braces, and that's sent shares 170% higher since Fool contributor Todd Campbell bought them in 2014. But he thinks even better times might be ahead for the company, so he's planning on holding this company for the long haul.
In this clip from The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes asks why.
A full transcript follows the video.
This video was recorded on May 3, 2017.
Todd Campbell: On the winning side of the column, I want to talk about Align Technology. Align Technology is a stock that I got invested in in 2014. Like many parents out there, I was drawn to this company because my teenage boy needed to get braces. As I was sitting in there and watching people pile in and pile out of the orthodontist's office, I started thinking to myself, what has really changed in the way of braces over the last 20 or 30 years, other than adding charms to your metal brackets that reflect your sports interests? What has really changed in this way?
Kristine Harjes: Wait, do they really have that now? I'm sorry to cut you off. Do they actually have that now?
Campbell: Yeah. My son, unfortunately, was not a candidate for Invisalign, which is Align Technology's product, because he had a more severe need of straightening than Invisalign can address. So he actually picked the Patriots' colors, because I know, God forbid, we're up here in New England, and that happens to be his team. Please forgive us, rest of the United States.
Harjes: You know half our listeners just stopped listening.
Campbell: Yeah, I know, shutting off left and right. But yeah, they actually do have that. If you think about the potential to disrupt that market, and to think about the millions and millions of adults and teenage kids who need braces or want braces, and fortunately can afford those braces. If you can come in with a product that saves some money, cuts the cost, and you can create a better, more desirable experience for the patient, that's a win-win in my book. That's the big reason that I went out and bought Invisalign, which is now up 170% for me. You talk about the minority of stocks outperforming the majority of underperformers, this was obviously a big winner, up 170% since May of 2014. I'd like to say that I knew I was going to get that kind of a return in a few short years, but that's not the case. My decision to buy them was simply, how much of the market have they penetrated now with Invisalign, and do I think consumers are going to want a clear aligner system rather than metal brackets? And what is the opportunity to expand that beyond the United States as a global platform?
Harjes: When you're looking at this company going forward -- you're still a shareholder, right?
Campbell: I am, and after doing my homework this past weekend, there's nothing that has changed as far as the reasons behind why I bought it and would want to own it. If you look at the most recent quarter, sales were up 30% year over year. If you look back at the Q1 2014, the quarter before I bought my shares, revenue growth was only up, "only," 18%. So, you have, as they're making more headway into treating more complicated cases, and as they're making more headway in rolling out this product, Invisalign, globally, in important markets like Asia, for example, where billions of people live and are getting wealthier and can afford products like this, I think there's a tremendous amount of opportunity. I think investors always benefit from going through and reading the earnings transcripts of companies. I recommend they do that for Align Technology, because they will learn some interesting things about the growth opportunities in places like South America, i.e. Brazil, and Asia, and what they're doing to try to better penetrate the teenage market. I think there's a lot of opportunity, still, from here. If you look at their annualized shipments for cases, it's running at about 800,000 cases. They estimate the total market opportunity would be 10 million cases. So you're really only talking about 8% penetrated across the entire market.
Harjes: That's incredible, yeah. Before we turn over to a potential loser you might want to talk about, what would you say is the biggest lesson you've learned from Align?
Campbell: Don't get worried about the quarter-to-quarter machinations. There have been competitors like 3M that are rolling out their own products. There have been patent disputes. There are a lot of reasons that, day to day, I could have looked at this and said, "Oh, boy, maybe the run is over and I should book this gain." Instead, I looked at it and said, "No, they're still the leader in this space, and they're 100% tied to this disruptive product." So as long as that remains to be the case, and revenue continues to grow the way it is, I think this is a stock that I can see holding on to for years and years.