Note from Daily Trade Alert: The following article first appeared in The Growth Stock Advisor, a premium newsletter offered by Investors Alley.

Nothing beats a nice smile. Maybe that’s why so many people try make sure theirs are perfect.

The reality is that as much as 75% of the world’s population have some form of dental misalignment. That’s why roughly 12 million people in major developed countries seek orthodontic treatments every year.

But today, instead of things like metal braces and elastic bands, there is a much better alternative.

This alternative is produced by the company I want to bring to your attention this week: Align Technology (ALGN).

The Expanding Addressable Orthodontic Market

Since its founding in 1997, Align has treated more than 9 million patients with its transparent, removable dental retainers and accompanying software program.

This is just the tip of the proverbial iceberg, according to management.

The company says there is an “incremental opportunity” to expand, adding that nearly three-quarters of all orthodontic cases annually could benefit from the company’s Invisalign method.

While Invisalign can be expensive, it is an appealing treatment—especially for teenagers with doting parents footing the bill. Align is making a lot of headway in this group, which is the largest orthodontic demographic. The company treated its two-millionth teen patient in January 2020.

No wonder then that management recently raised its addressable market estimate from 300 million to 500 million people globally. Align already sells its products in more than 100 countries.

How Align Works Its Magic

So how does Align’s technology work its wonders?

Invisalign is sold to consumers via nearly 200,000 dentists and orthodontists who have received specialist training.

The process begins with a dentist submitting their patient’s records and imagery to Align.

Working with the details provided, Align creates a three-dimensional (3D) ‘ClinCheck’ treatment plan using its proprietary technology. This simulates how a patient’s teeth will move during their treatment and shows when changes should be made to their retainers.

Once the dentist approves this plan, Align uses the data underpinning the ClinCheck program to develop and produce several transparent molds which shows the future position of the patient’s teeth, allowing retainers to be removed and changed as movement occurs.

Here is a surprising fact: this method has turned Align into the world’s largest manufacturer of custom 3D printed materials!

Align’s Robust Business

Reflecting the popularity of Invisalign, the company’s revenues have grown at a compound annual growth (CAGR) rate of 24% to $2.5 billion over the past five years. Approximately 80% of its sales come from the clear aligners themselves. The remaining 20% comes from the company’s imaging systems. This segment was bolstered last April by the acquisition of scanner business Exocad for $430 million.

Align’s business is not only high growth, but high margins as well. It has delivered gross margins of more than 70% for each of those five years and an operating margin greater than 20% for every period barring 2020. Of course, like many businesses, Algin got hit in the second quarter by pandemic-induced shutdowns.

Another plus in Align’s favor is that it has a well-protected intellectual property portfolio. The company refers to it as a “substantial business advantage.” Align has 489 active U.S. patents, 462 active foreign patents, and 559 pending global patent applications.

Together with its track record of effective treatment, the appeal of clear retainers, and its large distribution network, the patents mean that Align’s margins are underpinned by strong barriers to entry by competitors.

Align management wisely continues to invest to both develop its products and to reach a much wider customer base. It spent $175 million R&D in 2020, equivalent to 7% of net sales. These figures are is roughly in line with each of the previous four years.

Align’s Shareholders Are Smiling

What does the future hold for Align Technology?

For now, at least, the company has not taken a sustained hit from the economic fallout of the coronavirus pandemic. In fact, it is doing quite well. Align topped market forecasts in the fourth quarter of 2020, delivering net revenues of $835 million and operating profits of $242 million, up 28% and 41% respectively. This growth was driven by the shipment of 568,000 Invisalign devices.

I especially like the company’s growth overseas. Management signaled real progress on its overseas expansion when it flagged a “major milestone” with the shipment to its two-millionth patient in the Europe, Middle East, and Africa (EMEA) region.

Investors have already rewarded Align Technology shares with more than just a smile. Its shares have risen almost 30-fold in just a decade. And shares have more than doubled over the past year alone as the coronavirus pandemic boosted demand for its see-through aligners and digital dentistry platform.

However, the threat of competition from bigger companies is always a possibility, so let’s keep Align as a 4-star stock. It can be bought at any price up to $600 a share. Keep in mind that most brokerage firms have trading in fractional shares of stock.

— Tony Daltorio

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Source: The Growth Stock Advisor