Align Technology (NASDAQ:ALGN) returned to its winning ways in 2019, delivering a gain of more than 30%. It wasn't a smooth ride for investors, though. After soaring nearly 60% by early May, shares of the orthodontic device maker plunged almost 50% before stellar third-quarter results sparked a huge rebound.

But while shareholders are ending the year with smiles on their faces, great results in the past don't necessarily predict similar results in the future. Is Align Technology a stock to consider buying now or is it smarter to take profits off the table? 

Smiling woman holding clear dental aligner

Image source: Getty Images.

Align's challenges

Perhaps the best argument for current shareholders to sell Align stock and for other investors to stay away is that the competitive dynamics are now much more challenging than in the past. Align's fantastic performance over the last decade -- racking up a gain of close to 1,460% -- came during a time when the company's invisible clear dental aligners enjoyed solid patent protection and few competitors. That's no longer the case.

Large companies with much deeper pockets now compete directly against Align. Danaher and 3M, both of which claim market caps that are five times bigger than Align's, have entered the clear aligner market.

Smaller companies are also battling for market share. That's especially true in China. Align CEO Joe Hogan even acknowledged earlier this year that Shanghai-based AngelAlign "is a very competent competitor" in the huge Chinese market.

Align also faces a disruptive threat to its business model. SmileDirectClub markets its clear aligners directly to consumers, bypassing the dental professionals that Align targets. The two companies have been partners in the past, with Align supplying clear aligners to SDC. However, that partnership is ending in 2020, an unsurprising development considering the legal battle between Align and SDC that ended with SDC winning in arbitration.

Multiple growth opportunities

While Align clearly faces a tougher competitive environment now, the primary reason to like the stock is that it still has multiple growth opportunities. One of the most important of these opportunities is in international expansion. The company continues to achieve especially strong growth in Asian markets. This trend should pick up momentum with Align's expansion of its sales force in China.

Another way that Align can grow is by increasing orthodontists' utilization of its Invisalign products. The company's primary way of accomplishing this goal is by introducing new products that enable orthodontists to use clear aligners in more treatment settings and that make it easier for the doctors to achieve their own treatment goals.

There are many more general practitioner (GP) dentists than there are orthodontists, though. Align sees a tremendous growth opportunity ahead from enabling these GP dentists to use Invisalign. Developing innovative new products could boost GP dentists' utilization of Invisalign for more straightforward cases of malocclusion (misalignment of teeth). 

Although Invisalign has become a widely known brand, Align should be able to boost growth even more by expanding consumer awareness of its products and by motivating patients to seek Invisalign treatment. The company has dramatically stepped up its marketing efforts, including establishing relationships with multiple professional sports teams.

And while Align had to shut down its Invisalign stores due to the arbitration ruling in its skirmish with SDC, its non-compete agreement expires in August 2022. Look for Align to renew its focus on the retail setting in the not-too-distant future. 

Don't forget Align's scanners business, either. The company makes around 15% of its total revenue from selling its intraoral scanners. 

To buy or not to buy?

Align should definitely have solid growth prospects. But with shares trading at nearly 43 times expected earnings, will Align be able to grow enough to justify its premium price? I think it can.

The company's performance in Q3 shows that it's holding its own in the face of increased competition. I also find it encouraging that the average selling price for Invisalign appears to have stabilized and is even ticking upward after several quarters of declining levels.

Even with its fantastic growth over the last decade, Align still only claims 17% of the current addressable market. I think that the company will be able to expand this market by developing new products that can treat more difficult cases of malocclusion. Invisalign currently can be used in around 8 million of the 12 million total orthodontic cases each year.

Like any growth stock with a steep valuation, Align Technology will probably experience considerable volatility. Any hint of issues could cause shares to sink -- as they did for a while in 2019. However, my view is that Align will continue to deliver solid returns to patient investors over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.