This Underrated Healthcare Stock Could Make You Richer

Align Technology (ALGN 0.40%) is medical device company that's revolutionizing the orthodontic industry. Its patented Invisalign system and iTero scanners are more comfortable and convenient than traditional braces, and the company has already helped 10.9 million patients.

In this Backstage Pass video, which was recorded Oct. 29, 2021, Motley Fool contributor Jason Hawthorne shares his thoughts on Align's third-quarter financial results, highlighting why this stock is well-positioned for future growth. Fool contributor Brian Withers is also in this clip.

Jason Hawthorne: Align. Invisalign Clear Aligners. This company doesn't get the credit it deserves. For those who don't know, it's a replacement for braces. You get these clear aligners that straighten your teeth rather than the metal stuff in your mouth that you had as a teenager. It's an unbelievably fast-growing company.

In third quarter, the revenue was up 38% year-over-year, cleared $1 billion for the quarter. EPS was up 28%. They actually raised their guidance for this fiscal year to a little over $3.9 billion. So big raise. That's very consistent with this company. They seem to always do it.

A couple of things that really stood out: Case shipments were up 32%. Those are cases of aligners. The way this company makes money is several different arms: They ship cases, that's the pull-through of their product. But they also have digital scanners that orthodontists and general practitioners use to essentially make a map of someone's mouth, so that they can then use this exocad software to design the solutions and then order the aligners. When you think about it, there's a hardware, a software, and this consumable element to the business -- that's just an amazing flow of volume in dollars.

You can see their systems and services, that hardware and software, revenue was up 57% year-over-year. This really shows the penetration they're getting, in getting deeper into orthodontists and general dentists' offices. In the Americas, 88% of Invisalign's were ordered through a digital scan.

You think about this connected system of you go with crooked teeth, they scan you, and design it, and it's all ordered digitally. That really helped them during COVID. Dentists we're able to help patients where they couldn't see them necessarily with the metal brackets. They could do a lot of things digitally and remotely.

I noted a few things there, like the doctors, again, almost 86,000 doctors ordered Invisalign. That's up from 67% from the end of 2019. They really focus on optimizing the orthodontists and dentists practices. You might think when you have these Invisalign aligners in your mouth you're the customer. But I will tell you, they really focus on maximizing utilization and building the business for these dentists and orthodontists. That shows up there in the bottom bullet. They are focusing on retainers. Then also this deal with whitening company.

Again, these are more services that these dentists and orthodontics can offer. It's really an amazing company in the way that they've built this entire system, end-to-end of helping people straighten their teeth.

One takeaway I had that was a little bit of a hiccup for me is this case shipments were actually down quarter-over-quarter. They blamed seasonality, but I will tell you that I haven't seen that seasonality historically. Then they also blamed it on some shutdowns due to COVID outside the US. That makes sense to me, especially in Europe, they had some.

But this is one of my favorite companies. I've been in it for a long time. With these numbers, you might think it would trade an astronomical valuation; it's very high, but not relative to growth. I will just say these numbers look high: 38% growth, 59% growth for the year. But that 30% to 40% growth is pretty redeemed for this company. I will just leave it there, and say it's one of my favorite companies. And kind of amazing that you can still buy this at a relatively decent valuation.

Brian Withers: That's a great update, Jason. I love the digital approach adapting during the coronavirus. You can see they've really separated from, if you look at the stock chart, it followed the S&P 500. You've got two years there, so for the first year. Then, as the coronavirus started to win, zoom -- it took off. The other thing on this case shipments, it might be a pent-up demand if people were closed for a period of time and they ordered a bunch. Hopefully, that will even out over the next couple of quarters, but certainly something to watch.

Jason Hawthorne: They expect it to normalize. When you compare their growth rate to the SmileDirectClub, which you would expect to be a winner in COVID, they've just blown SmileDirectClub away in terms of the growth rates coming through COVID. It's definitely well-positioned.