Monday, December 5

Why Align Technology Dropped As Much As 13.7% This Week

What happened

Shares of Align Technology (ALGN 3.91%) dropped by as much as 13.7% this week, according to data from S&P Global Market Intelligence. The maker of the Invisalign teeth-straightener product posted a revenue decline and disappointing earnings for the third quarter, leading investors to sell the stock. As of 3:14 PM EST on Friday, Oct. 28, the stock is down 10.8% this week.

So what

Align Technology reported its financials for the three months ending in September on Oct. 26. Revenue declined 12.4% year over year in the period to $890.3 million, leading to a 59.8% drop in net income to $72.7 million. Earnings per share (EPS) of $1.36 came in significantly below Wall Street analyst expectations of $2.18. These weak numbers are likely why Align’s stock is down so much this week, even with the market on pace to put in its fourth straight week of gains.

The company sells teeth-straightening products to consumers, usually through dentists and orthodontist offices and for younger kids. These products are typically very expensive for families to purchase. With inflation raging in many countries around the globe and household budgets getting stretched, it is no surprise to see fewer people paying for teeth-straightening products.

On top of shrinking demand, Align is getting hit by foreign exchange headwinds, the worst in its history. The company has a lot of exposure outside the United States. With the dollar rising heavily against foreign currencies this year, its international revenue is getting hurt in dollar terms. Hopefully, this will not continue but rather only a headwind the business is facing today that investors are likely not happy about. 

Now what

With the drop this week, Align Technology is now down 70% over the past year and down over 20% in the last five years. This is no doubt disappointing for investors who have owned the stock over these periods.

ALGN data by YCharts. TTM = trailing 12 months.

However, if looking at a longer time horizon, Align Technology has been one of the best growth stocks to own since it went public. Even with shares down so much this year, the stock is up 2,700% all time, with revenue up 11,000% since going public. Invisalign has taken a ton of market share from traditional braces over the past decades. If you believe this will continue and that these current earnings are just a short-term blip, now could be a great time to buy shares of Align Technology.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Align Technology. The Motley Fool has a disclosure policy.



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