Markets can be irrational at any time. But during earnings season, they really kick it up a notch.
During earnings season, you’ll see stock prices go up in anticipation of good news, then crash back down when that good news proves true.
It’s also when the slightest blemish in an otherwise stellar report can send investors scrambling for the exits.
In late July, this leading manufacturer didn’t only beat earnings, but did so by 27%.
It’s the 10th earnings beat in a row, and seven of those were by more than 15%.
Then there was the bad news: Shipments of its signature product missed expectations… by a little less than 1%.
Guidance going forward was “cautious,” based on some weakness in China.
To put these bits of negative news in perspective, this is still a company projected to grow its earnings per share (EPS) by 24% next year and 87% over the next three years. And that’s far from the only reason it’s a stock to buy.
It’s also just been named the No. 1 manufacturer in the United States by a major industry magazine.
But that didn’t stop the stock from dropping 27% in one day after its mostly positive earnings report.
Fortunately, this overreaction is a great opportunity for you. Because the country’s top manufacturer is now available at a fantastic price.
Case in point: This pick just got a top score from our Money Morning Stock VQScore™ system.
Even Wall Street recognizes that the market has made a mistake. Based on analyst price targets, this stock could be due for a quick gain of more than 70%.
Which means there’s not much time left to grab your shares…
This Stock to Buy Could Soar 70% (Conservatively)
Align Technology Inc. (NASDAQ: ALGN) is the manufacturer behind Invisalign, the low-maintenance, no-show alternative to braces for straightening teeth.
Instead of gluing braces onto each tooth and manipulating them with wires, the Invisalign system uses intraoral scanning and 3D imaging to map out how the patient’s teeth should move over time. Then a 3D printer produces a whole set of virtually invisible aligners to be worn two weeks at a time. The patient can take them out to eat. And in the case of a rare complication, they aren’t stuck with painful hardware in their mouth while waiting for their next appointment.
The company’s first clear aligners were given FDA approval in 1998, and marketing began two years later. Since then, Align has expanded its footprint worldwide, with more than 13,000 employees, $2 billion in annual revenue, and 7 million patients treated.
In the two decades since Align was founded, the technology behind 3D printing and imaging has improved dramatically. And the company has taken full advantage of those developments.
In 2011, it acquired Israeli company Cadent, which manufactured the leading intraoral scanning system, iTero. The vertical integration of all Cadent’s technology has enabled Invisalign to offer turnkey systems to dentists and orthodontists to get a detailed picture of a patient’s orthodontic profile, then use sophisticated software to project the movement of each individual tooth over the course of treatment. Patients can literally watch their teeth straighten on a screen before signing off.
In late August, IndustryWeek magazine named Align Technology the No. 1 manufacturer in the United States for the first time. Three years ago, that was Apple Inc.’s (NASDAQ: AAPL) spot, and Align didn’t make the list at all. But after popping up at No. 3 last year, Align’s outstanding quality and revenue growth pushed it into the lead.
That’s a good indication that this stock won’t remain undervalued for very long. So if you want to own a piece of America’s top manufacturer, now is the time to make your move.
Now Is the Time to Buy ALGN
As mentioned earlier, not only did Align crush earnings expectations by 27% last quarter, but it was the company’s 10th straight earnings beat. And seven of those beats were by more than 15%.
Even with “cautious” guidance going forward, ALGN is projected to boost its EPS by 87% between 2019 and 2022, according to FactSet.
And sales are projected to nearly double from $1.47 billion in 2017 to $2.86 billion in 2020.
So don’t be surprised if even those numbers are conservative.
That’s probably why nine out of 13 analysts tracked by FactSet call ALGN a “Buy” or “Overweight.” The average price target for all analysts is more than 50% above the stock’s current price. And one puts it as high as $300, or 71.5% above its current price.
Those estimates are in line with ALGN’s valuation metrics, too. Both the stock’s price to cash flow and trailing price/earnings ratio are well below industry average. And its price/earnings-to-growth ratio for the next 12 months comes in at just two-thirds of the industry average.
All that adds up to a clear message: The market’s overreaction is an opportunity for savvy investors to get this stellar stock at a fantastic price.
— Stephen Mack
Source: Money Morning