Align Technology (NASDAQ:ALGN) has a unique product and years of double-digit growth, so a little slowdown from the coronavirus pandemic isn't going to keep the company down for long. The first quarter scared investors a bit, as the San Jose, Calif., company's revenue and net income fell dramatically from the previous quarter, with a drop of 15.2% in revenue and non-GAAP net profits plummeting 58.4%.

But keep in mind that the first quarter has traditionally been the company's slowest quarter, and the pandemic that kept people away from their orthodontist's office didn't help. Actually, compared to the same quarter, year over year, revenue was up 2.9%, though non-GAAP net profits were down 42.4%. Let's consider what the rest of the year will look like for the clear aligner company and whether it's a good buy today. 

A hand holding clear teeth aligners.

Image source: Getty Images.

A large untapped market 

With restrictions slowly easing in many states, Align will probably be able to get back to business as usual. Malocclusion, the misalignment of teeth, affects between 60% and 75% of the global population, according to the company, and that market has hardly been tapped, though it has shipped 628 million aligners in total.

"We serve a huge under-penetrated market, and our share of more than 300 million people who want a better smile is less than 3%," said Joseph M. Hogan, Align's president and CEO, in the first-quarter earnings call.

Being first to market remains a strength

Many people don't want to wear metal braces, for cosmetic as well as practical reasons. Since developing Invisalign clear aligners in 1988, Align has developed 489 active U.S. patents, 462 active foreign patents, and 559 pending global patent applications regarding its Invisalign aligners and The iTero 3D scanning process it uses to make the aligners. It continues to spar with several companies over patent infringement rights, most recently against 3Shape. 

It's increasingly facing direct competition with other clear aligner makers because of the expiration of some of its patents. However, the name recognition that comes with Invisalign and the fact that 96,000 orthodontists have already used Invisalign aligners for their patients will give it a continuing edge.

One of the company's growing competitors is SmileDirectClub (NASDAQ:SDC), which went public last September.

Invisalign was unusual when it debuted because it marketed directly to consumers, driving up demand at the orthodontist's office for its product. SmileDirectClub has gone one step further, selling its product directly to consumers, both online, through various outlets such as CVS Health, at a small number of its SmileShops, and starting this year, through dentists and orthodontists. 

While SmileDirect's stock is well below its IPO price of $23, it did get a nice bump on Wednesday, closing at $7.83, 12% higher than it closed on Tuesday, after it announced that it had joined Anthem Blue Cross and Blue Shield's new remote orthodontic program.

Align recently launched its own virtual platform, one it already had in a trial phase but moved up because of the pandemic, called the Invisalign Virtual Appointment and Invisalign Virtual Care. The system is designed to allow doctors to manage practice services when they are not in the same location as their patients.

Another key for Invisalign is its growth in overseas revenue. Last year, for the first time, its international revenue from its aligners was $881.4 million, nearly as much as the $1.1 billion it made from aligners in the U.S. That international growth slowed last quarter with the disruption caused by the COVID-19 pandemic, but that's another key area to watch for in the future.

Still, a word of caution

While the markets have bounced back, the rise in the unemployment rate is bound to haunt any company, such as Align Technology, whose business relies on consumers' discretionary income. While some insurance plans pay for orthodontic treatment, not all do and many have limits on how much they will cover. 

In the long term, Align should be fine. The company has no debt and as of March 31, had $790 million of cash, cash equivalents, and marketable securites, and may actually pick up market share against some struggling competitors. In the short term, however, the stock price may suffer until better numbers appear, likely in the third quarter.

It's still a buyers' market for this stock

While Align's share price has risen 91.3% from its low of $127.88 in mid-March, it's still well below its 52-week high of $319.17 set last June, and almost $100 a share below what it was trading at last May. With a price-to-earnings (P/E) ratio (trailing 12 months) of 10.39 and a profit margin well above industry average, it looks especially attractive to purchase on any dip in the stock's price.

SmileDirectClub, on the other hand, may have more growth ahead of it, but a lot more questions in the meantime. It has yet to make a profit and lost $114.5 million last year, though it still has $318.4 million in cash. The company may also face resistance from orthodontists who weren't thrilled by the company's direct-to-consumer tactics. 

Of the two, Align has the more established business model, a larger clientele, and more backing. It's certainly a less risky buy.