When investors think of growth opportunities, their attention typically gravitates to the high-powered tech arena. Top stocks like Amazon and Microsoft have delivered gains of more than 800% over the past decade, and it's hard to argue with those kinds of life-changing returns. But that doesn't mean that's the only place you can find excellent growth opportunities.
One underrated industry you might be inclined to overlook is dentistry. Not only is it stable, with prices that increase along with inflation, but a recent study highlighted why there could be yet another growth opportunity there that could unlock even more potential.
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Diabetes could accelerate the industry's growth
Dentists generate recurring revenue from patients over the years. Between regular cleanings, teeth straightening, fillings, and making cosmetic changes, there's no shortage of reasons someone may need to see the dentist at least once a year. That makes the industry a great one to invest in, because it provides a necessity to its patients and leads to recurring revenue.
The more care that a person's teeth requires, the more potential there is for dental offices to generate revenue. And a recent study from Rutgers University in New Jersey uncovered a subset of the population that unfortunately may have more of a need than others: those with diabetes. The study looked at mice with diabetes and found that the enamel in those mice was growing "significantly softer" than those without diabetes. Enamel is a tooth's outer covering that protects it from decay. The softer and weaker it is, the more vulnerable the tooth.
Mohammad Ali Saghiri is an associate professor at Rutgers School of Dental Medicine and worked on the study, saying the findings answered an important question: "We've long seen elevated rates of cavity formation and tooth loss in patients with diabetes, and we've long known that treatments such as fillings do not last as long in such patients, but we did not know exactly why."
Diabetes is on the rise
The significance of the finding is that as the number of people with diabetes increases, so too will the need for them to obtain dental care -- at elevated levels compared to people without diabetes. The Centers for Disease Control and Prevention estimates that by 2050, as many as one in three Americans will have diabetes, potentially doubling or tripling from levels in 2010.
No doubt, companies making insulin pumps or continuous glucose monitoring devices will generate a lot more revenue from meeting the needs of diabetic patients. But so too could dentists and dental companies. Analysts at Grand View Research project that the global oral care market will expand at a compound annual rate of 5.9% through 2028.
Investors shouldn't overlook dental stocks
If you're a growth-oriented investor, this is an opportunity you may wish to consider. At worst, companies in the dental industry can provide some long-term stability. And at best, they can make for good growth investments. A couple of investments worth considering today include Henry Schein (HSIC -1.51%) and Align Technology (ALGN -1.50%).
Henry Schein provides medical and dental professionals with products and services to help run their offices, including syringes, exam gloves, and anesthetics. The company has normally generated between $10 billion and $13 billion in annual revenue over the past five years. And during that time, it has consistently turned a profit margin of at least 3%. In the trailing 12 months, it has also brought in $656 million in free cash flow.
Align makes clear aligners that help patients keep their teeth straight, and it has been a fast growing business with sales of its products more than doubling in a span of just four years to just under $4 billion in 2021. Its margins are better than Henry Schein's -- with net income normally coming in at 15% of revenue or better. The stronger numbers and better growth prospects are key reasons why it trades at a higher earnings multiple (30 vs. 18 for Henry Schein).
Regardless of whether you choose one of these stocks to add to your portfolio, getting exposure to this underrated industry could be a great way to diversify and tap into some promising long-term potential.
