Align Stock Surges on Earnings… Again

Align NASDAQ: ALGN reported its Q4 2020 earnings yesterday, and beat on the top and bottom line – shares jumped nearly 9% in after-hours trading.

This marks the second consecutive earnings beat – and post-earnings surge – for Align. In Q3, analysts were left speechless when the orthodontics company’s revenue was up 20.9% yoy; that was 30% higher than the consensus. EPS beat by even more at nearly 300% above estimates.

In Q4, revenue was $834.5 million, better than the $649.8 million in Q4 2019 and analyst estimates of $791 million. Adjusted EPS of $2.61 was well above the consensus of $2.14.

Align, the company behind Invisalign has shined in the last two quarters, but 2020 was a tale of two halves for the company. In Q1, sales were down 0.4%. In Q2, sales plummeted more than 41% as the pandemic forced dental practices to close.

But Align quickly adjusted to the new normal and is set to truly thrive when we return to the old normal – or normalcy.

Align doesn’t just show up, provide its clear aligners, and disappear.

 The company has built a marketing machine that ensures its brand always remains top of mind for orthodontists and customers alike.

In the Q4 release, management said, “Last year, we launched a new and improved digital learning environment for our doctors offering a comprehensive learning platform with role-specific content for Orthos, GPs and their teams.” The content has been successful by any measure:

• 127k doctors accessed lectures, completed learning modules, and watched how-to videos in 2020.
• New certified doctors viewed more than 1.4 million pages of content.
• The “Ortho” channel alone welcomed 47k unique users.

An orthodontist’s recommendation carries a lot of weight, but appealing directly to the end-consumer is equally, if not more important. Align has done an excellent job of doing that.

Teens are one of Align’s main target markets. 2.4 million of the 9.6 million Invisalign patients to date have been teenagers. The vast majority of these teens aren’t shelling out thousands of dollars for aligners – their parents are – but they still play a major role in the decision-making process. Align understands this and has marketed its products to teens through, you guessed it, social media.

Teen superstar Charli D’Amelio garnered 2.7 billion impressions (that’s not a typo) in Q4. Since teenagers trust social media stars more than traditional advertising, those impressions count for more than you can imagine.

And Align hasn’t forgotten about the parents. The company is running a campaign that focuses on both teens and moms; it just generated a 90% yoy increase in total leads and 1,200% increase in Google NASDAQ: GOOG searches.

The big marketing spend hasn’t been for naught. In Q4, Invisalign adoption by teenagers was up 38.7% yoy.

A Massive Addressable Market

According to Fortune Business Insights, the global clear aligner market is expected to grow at a 19% CAGR over the next seven years and reach $5.6 billion.

On its Q4 earnings call, Align said it has the opportunity to transform “500 million smiles.” That’s more than 50x the number of smiles that Align has already transformed. It’s important to note that

1. a) This is the total addressable market and Align isn’t the only provider in town.
2. b) Align is referring to the long-term opportunity, not the annual one.

But still, it’s clear that Align can grow at a 20-30% CAGR for many years to come. The thing is, you’re not paying that much for this potential growth. Align is trading at a little over 70x forward earnings. In a few years, shares could look like an absolute bargain at current levels.

How Should You Play Align?

Align is up a lot since reporting third quarter earnings in October. Shares jumped more than 34% immediately following the release, and have added another 20% in the 3+ months since.

ALGN looks like it will open near $600 today. There could be some profit-taking at that level. The Q4 numbers were outstanding, yes, but they didn’t beat by as much as the Q3 numbers did. Anyone who bought in early October has nearly doubled their investment.

It’s wise to sit tight and wait for a small pullback. You can likely get into this long-term winner at a discount if you’re patient.