– According to GF value
The Align Technology inventory (NAS: ALGN, 30 year financial data) seems to be clearly overrated according to the GuruFocus Value calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock was trading, past business growth and analyst estimates of future business development. If a stock is well above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is well below the GF Value Line, its future return will likely be higher. At a current price of $ 582.35 per share and a market capitalization of $ 46.1 billion, the share of Align Technology is considered to be significantly overvalued. The GF value for the Align Technology is shown in the table below.
With Align Technology being significantly overvalued, the long-term return on its stock is likely to be much lower than future business growth, which averaged 20.1% over the past three years and is expected to grow 22.87% annually for the next three to five years will be years.
Since investing in companies with poor financial strength can result in permanent capital losses, investors need to carefully evaluate a company’s financial strength before making a decision to buy shares. A look at the cash-debt ratio and interest coverage can give a good first estimate of the company’s financial strength. Align Technology has a cash-to-debt ratio of 13.26, which is better than 69% of companies in the medical device and instrument industry. On this basis, GuruFocus rates the financial strength of Align Technology with 7 out of 10 points, which indicates a fair balance sheet. These are Align Technology’s debts and money over the past several years:
Companies that have been consistently profitable over the long term offer less risk to investors who may want to buy stocks. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Align Technology has been profitable for the past 10 years 10. For the past twelve months, the company had sales of $ 2.8 billion and earnings of $ 5.75 per share. The operating margin is 19.27%, better than 80% of companies in the medical products and instruments industry. Overall, Align Technology’s profitability ranks 9th out of 10, which suggests strong profitability. These are Align Technology’s revenues and net revenues over the past few years:
One of the most important factors in evaluating a company is growth. According to GuruFocus Research, long-term stock performance correlates closely with growth. Companies that grow faster create more value for shareholders, especially when that growth is profitable. Align Technology’s average annual revenue growth is 20.1%, better than 79% of companies in the medical device and instrument industry. The 3-year average EBITDA growth is 8.3% and is thus in the middle of the range for companies in the medical devices & instruments sector.
Another way to determine a company’s profitability is to compare the return on invested capital to the weighted average cost of capital. The return on investment (ROIC) measures how well a company generates cash flow in relation to the capital invested in its business. The weighted average cost of capital (WACC) is the average interest rate a company pays to all of its securityholders to fund its assets. When the ROIC is higher than the WACC, it means the company is creating value for shareholders. For the past 12 months, the Align Technology return on investment is 11.92 and the cost of capital is 11.20. The historical comparison between ROIC and WACC of the Align technology is shown below:
Finally, the inventory of Align Technology (NAS: ALGN, 30-year financial stocks) is considered to be significantly overvalued. The company’s financial condition is fair and its profitability is strong. The growth is in the middle of the range of companies in the medical devices & instruments sector. To learn more about Align Technology stock, check out its 30-year financials here.
To find out which high quality companies can produce above average returns, please visit GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.