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I'm Up 370% on This Under-the-Radar Stock, and I'm Not Selling

By Todd Campbell - Updated Nov 8, 2017 at 3:28PM

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It may only be in the early innings for this fast-growing healthcare stock.

Most of your portfolio's returns will be driven by the minority of your stock picks, so a willingness to hold on to your winners long term can help you beat the market. For example, I'm up more than 370% on Align Technology (ALGN -0.62%), and following its third-quarter earnings, I still don't have plans to sell my stock anytime soon.

Disrupting a big market

For years, orthodontists have relied upon traditional metal braces to straighten teeth, but increasingly, they're adopting Align Technology's Invisalign, a transparent straightening system that's fueling significant top- and bottom-line growth.

A smiling man sits on the floor while paper money falls from the sky around him.


Initially, Invisalign could only be used in the least complicated cases. However, investments in R&D have led to advances allowing its use in more complex cases and in teens, and that's helped Align Technology successfully penetrate more deeply into orthodontic practices. 

As a result, Align Technology's gone from shipping 363,500 cases in 2012 to shipping 800,000 cases in 2016. The company's made even more headway this year. In the third quarter, Invisalign case shipments increased 33% year over year to 236,100, putting it on pace for another record year in shipments.

Undeniably, growing market penetration in the U.S. has been a big reason behind the company's success, but global demand is growing even more quickly, and the opportunity outside America is massive. Invisalign volume in North America increased 25%, but international volume jumped 47% year over year last quarter.

Overall, rising global case shipments have translated into significant sales growth. Since 2012, the company's sales have increased from roughly a $500 million annualized pace to $1.34 billion.

ALGN Revenue (TTM) Chart

ALGN Revenue (TTM) data by YCharts

Propelling profit

Leveraging revenue growth against fixed costs has been incredibly profit-friendly for Align Technology and its investors.

In the third quarter, sales grew 38.3% to $385.3 million, and that translated into $82.6 million in net operating income from continuing operations, up 60.7% year over year. After adjusting for currency impacts and one-time items, Align Technology's adjusted earnings per share grew 60.3% year over year to $1.01 in the quarter. Over the past nine months, Align Technology's $1.1 billion in sales have produced $221 million in net income, up from $787 million and $142 million, respectively, in Q3 2016. This acceleration has increased trailing-12-month net income to nearly $270 million from $145.8 million in 2014, when I bought my shares.

ALGN Net Income (TTM) Chart

ALGN Net Income (TTM) data by YCharts

Staying put

Align Technology's captured just 10% market share of an addressable market opportunity it pegs at 6 million patients per year. Importantly, its market share in teens -- where case shipments are growing most quickly -- is only 4%. As the company's Invisalign wins over more providers and patients, I expect it to continue chipping away at the dominant position that traditional metal braces hold.

Admittedly, Align Technology isn't a secret anymore. Its shares have skyrocketed since I bought them, and that makes locking in my gain tempting. However, I don't think selling would be the right long-term decision. Sure, shares will probably fall at some point, but the opportunity to treat more patients globally has me thinking that it's best to avoid timing entry and exit points on this company and stay put with my position.


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Stocks Mentioned

Align Technology, Inc. Stock Quote
Align Technology, Inc.
$273.34 (-0.62%) $-1.70

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