This ALGN stock forecast article was written by Maria Grishaev, Analyst at I Know First.

Executive Summary

• Following the announcement of the third quarter 2020 financial results, Align Technology received a major boost in stock price rising from $335.81 to $453.23 in one single day.
• Quantitative analysis results indicate bullish signals after stock price topped out the moving average line.
• ALGN deserves a one-year target price of $510, indicating a cautious buy recommendation.

Overview

Align Technology is a global medical device company that produces orthodontic equipment for restorative treatment. The company recently introduced the Invisalign G8 – the latest in line of biomechanics innovations by the company, and Invisalign Stickables – sticker accessories designed for use in Invisalign clear aligners.

Following the announcement of strong third-quarter 2020 financial results, Align Technology received a major boost in stock price rising from 335.81$ to $453.23 in a single day.

These events helped the stock price to surge in total by 71.25% YTD in comparison to an 8.66% rise of the S&P500 index.

ALGN Outperforming Industry Average

To better understand the performance of the company, I’ll compare the growth and performance of Align Technology to the medical equipment and supplies industry sector before and during COVID-19.

Within the Healthcare sector, 158 companies have a lower price to earnings ratio and 393 companies have a lower price to sales ratio. We can also see from the table that in most ratios the company has performed better than the industry average. While we can see that the year-to-year revenue growth rate went slightly down versus the industry growth, it’s still at a higher rate than the industry. 

Indicators Show a BUY Signal

As we can see in the chart, the stock price crossed above the moving average for 200 days (the purple line) in mid-May. This signals a potential change in trend that came true in this case as the stock rose from there. We can also see that the moving average for 50 days (the red line) crosses above the moving average for 200 days in late June. It also indicates a trend shift up and is known as the “golden cross” that gives us a buy signal.

Also, The Bollinger Bands® squeeze indicated a potential opportunity. A squeeze signals a period of low volatility and is considered by traders to be a potential sign of future increased volatility and possible trading opportunities. This can be seen happening here from August to October. The peak outside the bands in July and October correspond with the announcements of the quarterly financial results.

The Yahoo Finance coverage for the company is performed by 11 analysts, with the majority of whom took the Strong Buy position on the stock and some took a Buy position. The analysts’ community puts the average target price for the stock at $432.07 while it is traded at $477.85 which makes a 10.5% difference.

What Does DCF Analysis Tell Us?

I estimated my own target stock price by using the discounted cash flow (DCF) model. Future cash flows were projected using historical data combined with an annual outlook of the industry and company. The future cash flows are discounted back to the present to get a valuation. Below is the DCF model. Please notice that all numbers are in thousands of dollars.

For the analysis, I used conservative growth figures based on historical annual reports. The results of the DCF analysis show that ALGN’s stock target price should be around 510$. My target price is lining up on the upper scale of analysts’ average price prediction. This projected share price makes a 6.36% difference from the current share price. 

Conclusion

I take the buy-side on ALGN stock because it has a stable growth in revenue in recent years. It is reasonable to expect further growth in the stock price as the company utilizes the potential of the recently announced new products.

Please note that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts. The light green for the short term forecasts is mildly bullish while the darker green is a strong bullish signal for the one-year forecast.

Past Success with ALGN Stock Forecast

I Know First noticed the upward trend of ALGN and has been bullish with the price since late-July. As mentioned in our July 31, 2020 premium article, the I Know First algorithm recommended ALGN as one of the Top S&P 500 stocks package. The AI-driven ALGN stock forecast gave a bullish score for all time horizons. The algorithm was successful on a one-month and three months’ time horizon resulting in a 8.6% and 43.88% rise respectively since the forecast day.

Moreover, on November 3, 2019, the I Know First algorithm recommended ALGN as one of the Top S&P 500 stocks package to buy. The AI-driven stock forecast was successful on a one-year horizon resulting in an 88.09% gain since the forecast date.

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Please note – for trading decisions use the most recent forecast.