To The Moon

$Align Technology(ALGN)$

Align Technology: A High-Quality Business at a Value Price

When equity markets trade at lofty levels, it’s often difficult for investors to find opportunities that check every box. The broader U.S. indices have been hitting new highs, fueled by optimism around rate cuts, AI-driven growth narratives, and continued corporate buybacks. In such an environment, high-quality businesses that are actually trading at a discount stand out all the more.

Align Technology (NASDAQ: ALGN) is one of those names. While not perfect—and certainly not without risks—it represents the type of setup that patient investors may want to consider. Despite being down more than 80% from its all-time highs, Align still holds a strong competitive position in its industry, sports healthy long-term fundamentals, and trades at a valuation far below the broader market.

Business Overview: The Invisalign Franchise

Align Technology is most famous for its Invisalign brand of clear aligners—an alternative to traditional metal braces. These aligners are marketed as more convenient, more comfortable, and often more affordable for patients who qualify.

Beyond Invisalign, Align also sells digital scanning and imaging systems, allowing orthodontists and dentists to capture 3D images of patients’ teeth. This ecosystem of scanners, software, and aligners has created a vertically integrated platform that has been difficult for competitors to replicate at scale.

That said, the business is still largely defined by discretionary orthodontics. For many consumers, Invisalign is about improving aesthetics rather than correcting a critical medical condition. That makes demand somewhat cyclical, tied to disposable income and consumer confidence.

Historical Growth: A Track Record of Success

If we step back and look at the long-term record, Align’s growth story is impressive. Earnings per share (EPS) grew steadily for nearly two decades, with the only major hiccup occurring during the Great Recession. Once the economy recovered, Align’s growth trajectory resumed, and for years the company compounded earnings at 20%+ annually.

That consistency carried all the way through 2019. Then the pandemic hit, which temporarily limited visits to orthodontists. At first, earnings dipped. But once fiscal stimulus checks hit households, demand for elective treatments like Invisalign surged. Earnings jumped an eye-popping 114% in a single year.

Unfortunately, Wall Street extrapolated that one-off surge too far into the future, bidding the stock up to nosebleed valuations of 75x–85x earnings. Such multiples were never sustainable. When reality normalized, Align’s stock price cratered. But despite that steep correction, long-term shareholders who bought before the pandemic boom are still sitting on returns of over 1,000%. That’s the mark of a high-quality company that simply got ahead of itself.

Today’s Valuation: A Different Picture

Fast-forward to today, and Align trades at just 13x earnings—a dramatic compression from its former heights. For context, the S&P 500 currently trades at ~25x forward earnings, nearly double Align’s multiple.

Analysts expect Align to grow EPS at about 7–8% annually over the next several years. That’s much slower than its historical growth rates but still a solid number for a business with strong competitive advantages. Using my payback-time model, if you were to buy the entire company at today’s price, it would take just 9–10 years to earn back your investment through earnings—compared to ~15 years for the broader market.

This means investors are being offered a higher-quality business at a far cheaper valuation than the index. The key question is whether Align can sustain even modest earnings growth. If it can, the upside from here could be substantial.

Consumer Dynamics: Delayed Demand, Not Lost Demand

One of the biggest factors shaping Align’s outlook is consumer behavior. Unlike necessities such as groceries or utilities, orthodontic treatments are discretionary for most people. Families may delay treatment when finances are tight, but the need for straighter teeth doesn’t go away.

This is a crucial distinction. With technology products or other cyclical consumer goods, delayed purchases can sometimes evaporate—by the time a consumer is ready to buy, a new product has replaced the old one. Teeth, however, aren’t going anywhere. If households delay orthodontic treatment today due to inflation and higher living costs, many will revisit the option in the future once financial conditions improve.

In fact, pent-up demand may even create a tailwind when macroeconomic pressures ease. We saw this dynamic play out during the pandemic stimulus period, when many households suddenly had extra funds and flocked to Invisalign treatments.

The Macroeconomic Backdrop

The Federal Reserve recently cut interest rates as expected. While one rate cut won’t instantly transform household budgets, a sustained easing cycle could provide relief for consumers in debt and gradually support spending on discretionary categories like orthodontics.

Of course, there’s still the risk of a formal recession. If unemployment rises or wage growth stalls, Align could face several more years of sluggish demand. But with the stock already down more than 80% from its highs, much of that risk is arguably priced in.

Contrast this with the broader market, where many companies are still trading at historically rich valuations that assume smooth sailing ahead. Align, by comparison, is priced as if its best years are behind it. That creates an asymmetric setup: modest earnings growth could lead to outsized stock returns, while the downside appears more limited than in many overvalued sectors.

Risks to Consider

While Align looks attractive today, investors should weigh several risks:

1. Macroeconomic Pressure If inflation persists and consumer spending remains constrained, demand for Invisalign could remain weak for years.

2. Competition Other clear-aligner providers and traditional orthodontics could capture market share, pressuring Align’s margins.

3. Execution Align’s management will need to continue innovating in scanning, digital services, and aligner technology to maintain its competitive moat.

4. Valuation Compression While the multiple has already fallen significantly, a recession could cause further near-term downside.

Potential Upside

On the other hand, Align’s upside potential is notable:

• Even 7% annual earnings growth at today’s valuation could yield double-digit annualized returns for shareholders.

• If earnings growth temporarily re-accelerates to the 10–12% range, the stock could double from here over a 5-year horizon.

• If sentiment shifts and the stock merely reverts to a 22x P/E ratio, investors could see gains approaching 100% without assuming unrealistic growth.

• A short squeeze is also possible if bearish sentiment proves overdone, leading to sharp rallies like the 70% gain seen within six months back in 2020.

A Value Play on a Quality Business

In many ways, Align represents a “value investor’s growth stock.” The business model is durable, the brand is strong, and the competitive advantages are real. Yet the stock is trading as if the growth story is dead.

That’s exactly the type of disconnect long-term investors look for. It’s not a “cigar butt” or a company with deteriorating fundamentals. It’s a high-quality franchise temporarily caught in the wrong part of the economic cycle.

Verdict: Buy, Hold, or Avoid?

At today’s levels, Align Technology looks like a buy for patient investors. While the timing of the recovery is uncertain and may take years, the risk/reward profile is compelling.

• Entry Price Zone: Around $125–$135 looks attractive, with further downside to $100 offering even stronger long-term returns.

• Position Sizing: A starter allocation of 0.5–1% of portfolio capital makes sense given the macro uncertainty, with flexibility to add if valuations remain depressed.

• Time Horizon: Investors should be prepared to hold for at least 5–7 years to let earnings growth and potential multiple expansion play out.

Key Takeaways

1. Align Technology has fallen 82% from its highs but remains a high-quality business with a dominant brand.

2. At ~13x earnings, the stock trades at a discount to both its history and the broader S&P 500.

3. Demand for orthodontic treatments is discretionary but delayed, not eliminated—creating potential for pent-up demand in the future.

4. Risks include macroeconomic weakness, competition, and execution challenges, but much of this is priced in.

5. With even modest growth, Align could deliver strong long-term returns, making it one of the rare value opportunities in today’s expensive market.

Bottom line: Align Technology isn’t perfect, but it doesn’t need to be. At today’s valuation, it represents a rare combination of quality, growth potential, and discounted pricing in an otherwise expensive market. For investors with patience and a long-term horizon, ALGN deserves serious consideration.