With so many people starting to work from home in March 2020 due to the novel coronavirus pandemic, there has been a major turn to remote work. Normal office conversation is now taking place via outlets like Slack. Work meetings held through the Zoom Video Communications (NASDAQ:ZM) platform. And while it may not come to mind at first, one specific trend is on the mind of many people in this situation: dental health. In turn, there are plenty of juicy dental stocks out there to take a look at.
Overall, the World Health Organization (WHO) estimates that oral disease affects nearly 3.5 billion people globally. The dental industry has therefore been growing at a steady pace and is expected to be worth $42.2 billion by 2027. Thus, dental stocks can be an interesting investment theme.
Within the dental industry, the global orthodontics market presents an attractive investment opportunity. Orthodontics refers to the segment that’s involved in the correction of dental irregularities.
It’s also worth noting that with a global vaccination drive, the dental industry is gradually overcoming the pandemic headwind. However, the pandemic has actually been a catalyst for a teeth-straightening boom.
According to cosmetic dentist Brian Kantor —
“We have seen a boom in all cosmetic dentistry, especially teeth straightening. This is for a few reasons; everyone is on Zoom looking at their teeth and people are upset that they have crooked or dark teeth.”
The British Orthodontic Society also confirms a surge in adults seeking orthodontic treatment since the start of the pandemic.
Therefore, let’s focus on four dental stocks that have presence in the orthodontics market. These stocks are worth considering for the next few years as growth gains traction.
- Align Technology (NASDAQ:ALGN)
- DENTSPLY SIRONA (NASDAQ:XRAY)
- Henry Schein (NASDAQ:HSIC)
- 3D Systems (NYSE:DDD)
Now, let’s dive in and take a closer look at each one.
Dental Stocks to Buy: Align Technology (ALGN)
ALGN stock has been in an uptrend with returns of 33% in the last six months. With the company delivering strong performance on the revenue front, it seems like that upside will sustain.
Align Technology is a global medical device company with equipment sales that support restorative and aesthetic dentistry. The company’s Invisalign system is also claimed to be the most advanced clear aligner system in the world.
For the second quarter of 2021, the company reported revenue of $1 billion. On a year-over-year (YOY) basis, revenue was higher by 186.9%. The company’s clear aligner has been the revenue driver with revenue contribution of $841 million. Considering the company’s growth trajectory, it’s not surprising that the stock has remained in an uptrend.
It’s also worth noting that the company has been building on the teen market for clear aligners. This is likely to boost the total addressable market globally.
From a financial perspective, the company reported cash and equivalents of $1.1 billion for Q2 2021. Additionally, the company reported free cash flow (FCF) of $183 million for the quarter. Thus, with an annualized FCF visibility of $800 million, the company seems well positioned to create shareholder value.
Overall, ALGN stock might look expensive at a forward price-earnings ratio (P/E) of 55.6. However, the stock uptrend can sustain if top-line and cash flow growth remain robust. That seems very likely with Invisalign clear aligner likely to be the growth driver.
DENTSPLY SIRONA (XRAY)
XRAY stock seems like another interesting play among dental stocks. In particular, with the company having strong focus in the orthodontics segment.
The company has been in a high-growth trajectory with Q2 2021 sales accelerating by 117.3% YOY. Furthermore, the company reported operating cash flow of $214 million for the quarter.
DENTSPLY is also well diversified globally with 34% revenue from the United States, 41% from Europe and 25% from other geographies.
Collectively, though, there are two important factors to like XRAY stock.
First and foremost, the company is on track for research and development spending that’s 4% of total revenue. Focus on innovation driven growth is likely to deliver results.
Additionally, the company reported $332 million in cash and equivalents as of Q2 2021. With strong cash flows, DENTSPLY is positioned for acquisition driven growth. In June 2021, the company announced the acquisition of Propel Orthodontics for a consideration of $131 million. The latter is a manufacturer of orthodontic devices with global market presence.
Moreover, XRAY is also among the dental stocks that pays dividends. Currently, the stock offers an annualized dividend of 44 cents. That said, with healthy free cash flows and considering the company’s growth trajectory, dividend growth is likely in the coming years.
Dental Stocks to Buy: Henry Schein (HSIC)
HSIC stock, which has been in a slow uptrend, is my top picks from among dental stocks. The stock looks attractive at a forward P/E ratio of 17.8.
As an overview, Henry Schein is a dental distributor and solutions company for general practitioners, specialists, and laboratories. In the dental segment, the company is well diversified globally with 59% revenue from North America and 29% from Europe.
A key point to note is that the company has a strong balance sheet with a low debt-to-capital-ratio. The company has therefore been active on the acquisition driven growth front. In June 2021, the company acquired 70% stake in eAssist Dental Solutions. The latter provides outsourced virtual dental billing services.
From a margin perspective, the company’s focus on dental specialty market can yield results. As an example, Henry Schein has presence in the high margin implants business. The orthodontics and endodontics segment can also help in supporting EBITDA margin expansion.
Overall, HSIC stock looks attractive at current levels. With leadership position in key markets, the company seems well positioned to accelerate growth in the coming years.
3D Systems (DDD)
As a provider of 3D printing and digital manufacturing solutions, 3D Systems might not be a pure-play among dental stocks. However, the stock is attractive and has already surged by 184% year-to-date (YTD).
In the dental segment, the company already has 30 different dental applications. As an example, the company is a provider of automated dental 3D printing solutions for orthodontics, prosthodontics and implantology.
In terms of specific products, 3D Systems provides industrial-grade tools capable of addressing various components of orthodontics. Additionally, with the company’s NextDent solution, orthodontic devices can be “produced at “dramatically increased speed.”
For Q2 2021, 3D Systems reported revenue growth of 44% YOY to $162.6 million. It’s also worth noting that revenue from healthcare increased by 68.6% YOY. The segment is therefore the key revenue and profitability driver.
With improved operational efficiency, the company also reported an adjusted EBITDA margin of 12.4%. The sale of non-core assets is further likely to boost the company’s profitability.
Overall, I would wait for some correction before considering fresh exposure to DDD stock. The company however seems to be making the right moves. Further improvement in EBITDA margin and cash flow seems likely with focus on the core business.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.