The Stars are Aligned for Growth at Align Technology (NASDAQ:ALGN)

Align Technology (NASDAQ:ALGN) shares were hit hard at the onset of the pandemic. Closed dental practices meant little demand for the company's popular Invisalign 'invisible' plastic alternative to traditional metal braces.

But with many dentists' offices now reopened, investors have restored faith that the company can continue to put up some impressive growth numbers.

After shedding roughly half its market value from early January to late March, Align Technology's stock has roared back to recoup all those losses. With the stock now charging back towards its all-time high, investors have reason to smile about the company's reset growth expectations. 

What are Align Technology's Growth Drivers?

In an age where image matters, consumers are paying attention to innovative products like clear aligners. Align's main product, the Invisilign clear aligner has been the company's primary growth driver, but still has tremendous potential. According to Fortune Business Insights, the global clear aligner market is forecast to grow at a 19% rate from 2020 through 2027 and reach $5.6 billion.

Although Align offers teeth-fixing solutions for a range of people, it’s the teen demographic that holds the key to growth. And this goes hand in hand with the company's social media-driven marketing campaign. Align's teen awareness efforts are effectively connecting it with youth and young adults through Facebook, Snapchat, Instagram, Twitter, and social influencer marketing.

There's no doubt that Align's future success will be dictated by the continued worldwide adoption of the company's clear teeth aligners. It depends heavily on the product which accounted for 84% of sales last year. This dependence is a common criticism of the company.

But it’s a criticism that’s misplaced for two reasons. First, Invisalign is a leading product that has plenty of room to expand into dental practices worldwide. The international opportunity is particularly compelling. Countries like Japan, Taiwan, Hong Kong, and South Korea are experiencing the strong adoption of Invisilign—and have recovered quicker than expected since dental offices have reopened in the Asia Pacific region. Not surprisingly, the teen market is responsible for much of the demand.

Align has also introduced new virtual solutions during the pandemic that may have staying power even as business conditions normalize. The Virtual Appointment and Virtual Care solutions have allowed dentists to manage a rage of services remotely while the ClinCheck "In-Face" Visualization tool has allowed them to monitor Invisilign progress. As virtual medical care becomes a bigger part of our lives these types of services will provide continuity for the doctor-patient relationship and keep the growth engine humming at Align.

The company is also thinking outside the box in exploring valuable partnerships with organizations that aren't filled with dental chairs. This summer Invisalign became the "official clear aligner sponsor" of the NFL. Separately, Align signed a multi-year deal to be the "official smile" partner of the New Orleans Saints. Creative partnerships like these will continue to expose Align to wide audiences.

Secondly, Align is gradually diversifying its product mix. Computer aided design and manufacturing (CAD/CAM) digital services are becoming an increasingly important part of the growth strategy. This business includes the iTero intra-oral scanners and OrthoCAD services that dentists rely on for general dentistry, orthodontics, and record storage. The CAD/CAM segment is growing about twice as fast as the aligner segment after posting 38.5% sales growth last year.

Does Align Technology Have Strong Financials?

Align's last two quarterly earnings results fell short of consensus estimates amid lower sales during the pandemic. Yet the stock has charged higher. Why? The market recognizes the company's financial strength and long-run growth prospects.

Before COVID hit, Align was delivering some big growth numbers including 22% sales growth in 2019. And while 2020 is expected to be a down year in the sales column, sales growth is forecast to rebound strongly in 2021 to the tune of 38%.

What about the bottom line? Look no further than the company's lofty 79% net margin which has driven strong earnings growth over the last several years.

Align's fundamental strength is also evident by its absence of debt. With a strong solvency position Align can continue to pursue growth opportunities that enhance shareholder value.

How are Align Technology's Technicals?

Overall Align's chart action looks very good. Back on May 22^nd the stock price crossed over both the 50-week and 200-week moving averages. Both events were bullish for the long-term.

More recently, on October 12^th, Align's chart formed a symmetrical continuation triangle pattern when the stock was at $335.75. The bullish intermediate-term event suggested that the stock will resume its prior uptrend and may be targeting the $368 to $377 range over the next few weeks.

This week's earnings report may provide a boost to get that targeted upside of as much as 12%. When Align reports after hours on October 21^st, the market will be looking for Q3 EPS of $0.17, but more importantly, signs of continued recovery in the business.

Regardless of where the near-term winds blow, Align's long term trajectory looks promising. With a leadership position in the rapidly growing global clear aligner market investors should brace themselves for a period of strong multi-year growth.