Align Technology Has a Fundamental Gap

During the depths of the novel coronavirus catastrophe, the broader healthcare space became a rather unusual sector. If a publicly traded company’s business offered a direct play on the crisis – such as Teladoc Health (NYSE:TDOC) – then shares were likely to skyrocket. On the other hand, if a business had no direct connection, then results were less favorable. Such was the case with Align Technology (NASDAQ:ALGN) and ALGN stock.

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Source: rafapress /

To provide a brief background, Align Technology provides next-generation orthodontic and dental solutions. Primarily, the company is known for its Invisalign system. According to its website, Invisalign is the “most advanced clear aligner system in the world.” Additionally, Align offers iTero, an intraoral scanner that has multiple applications. In addition to orthodontic procedures, professionals have used iTero on “restorative crowns, bridges, and custom implant abutment cases.”

Under any other circumstance, you’d expect ALGN stock to fly. Of course, with the coronavirus being the black swan event that it is, very few companies were safe from its wrath. Thus, in the first calendar quarter of this year, Align shares looked deeply beleaguered.

Obviously, it didn’t help that the novel coronavirus is so infectious. I think I speak for everyone that going for any kind of oral procedure was just not in the books. For a time, desperation was creeping in.

Fortunately, state governments managed to slow the spread of infection. That resulted in many states opening their doors, an action that helped spark a surprisingly positive May jobs report. This announcement alone sparked a big move in ALGN stock, justifying its more than two months’ long rally.

But is there enough room for prospective buyers to set up an appointment today?

You Should Read the Fine Print on ALGN Stock

At time of writing, ALGN stock is technically considered overbought. Although you never want to base a big decision exclusively on any one metric, I think this sign is significant. That’s because it aligns (no pun intended) with the fundamentals’ fine print.

First, the May jobs report – though admittedly encouraging against the nonstop barrage of bad news we’ve been accustomed to hearing – is not the victory celebration that bulls had hoped for. Yes, adding 2.5 million jobs is better than losing them. However, the bulk of the job gains have come from the leisure and hospitality sector.

Typically, you don’t find presidential administrations boasting about a robust base of waiters and bussers. Instead, you’d expect that bravado for so-called “STEM” jobs.

But it’s the great jobs that are likely getting axed right now. For instance, weekly initial jobless claims still number in the millions. And that portends a cloudy picture for ALGN stock because let’s face it – orthodontic procedures aren’t cheap.

Second, investors should carefully look into the science behind ALGN stock. According to the Turkish Journal of Orthodontics, a study regarding clear aligners published in December 2019 revealed that while demand for this platform is strong, “little clinical research on the effectiveness and efficacy of clear aligners” exist.

Furthermore, the report concludes that while “Clear aligners can be used in mild to moderate crowding cases,” caution must be “exercised in complex cases.”

To be fair, Align asserts that their product can be used in many cases. However, there is something to be said about biased opinions.

More importantly, from a patient’s perspective, you want to know that the money you’re spending is worthwhile. However, the aforementioned report also states that “long term stability studies are required.”

Do you want to be the guinea pig?

A New Frontier

Before you think that I’m bashing on ALGN stock, I love the idea of its underlying business. Over time, it’s reasonable to assume that clear aligners will accommodate increasingly complex cases. As well, the cost should come down as this platform goes mainstream.

But for now, this technology is relatively new. And if the Turkish Journal of Orthodontics wasn’t enough to get you thinking cautiously about Align Technology, you may want to consider its rival SmileDirectClub (NASDAQ:SDC). As the New York Times reported, SmileDirectClub has apparently waged an aggressive censorship campaign to silence patients who didn’t have a positive outcome.

I’m not suggesting that Align is doing something in that vein. However, such incidents suggest that this industry has some work to do. Plus, with people still reeling from the coronavirus both financially and health-wise, ALGN just seems unusually risky.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.

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