If we look at the long-term schedule of Align Technology, Inc. (ALGN) (player in orthodontics), we’ll see that stocks have been booming over the past two decades. Arguing this, the MACD technical indicator has never been as overbought as it is now on the long-term chart. In addition, there has now been a transition, which is essentially a sell signal, and investors should pay attention to the height of this sell signal, which is currently bringing more bearish connotations to ALGN. We like to use this technical indicator on long-term charts because of the duality of the indicator (trend and momentum) as well as the large amount of information involved in reading.
On a shorter-term chart, we see the implications of this monthly MACD intersection mentioned above. Shares of ALGN have now fallen below their 200-month average, and the corresponding 100-month average has also declined quite aggressively. In addition, volume trends continue to be bearish despite rally rallies held in February.
In order to find out the potential downside to ALGN, we would like to move on to balance sheet trends to get accurate information about the company’s financial condition. If some of the company’s key positions improve, it will definitely only stand a chance of a rapid decline until the score is overstated. We will start with cash and their ALGN equivalents and examine the period over the last 10 quarters.
AlignAt the end of the 4th quarter, cash and short-term investments amounted to $ 1.17 billion. This means that over the last 10 quarters this line has grown by about 62%. In general, we like to see an increase in the amount of cash in companies, because it gives companies more opportunities, for example, to buy back shares. For example, there are $ 725 million left in the current share repurchase program. Shares currently outstanding (February 21, 2022) amounted to 78.85 million, down 1.1 million from the second quarter of 2019.
Another major current asset is receivables, which amounted to $ 897 million at the end of the fourth quarter, as we see below. Here we see growth of 48% over the last 10 quarters. Thus, current assets amounted to 2.49 billion dollars, and current liabilities – 1.924 billion dollars. The increase in current liabilities during this time outpaced current assets (143%). To do this, the companyThe current ratio was 1.3 in the 4th quarter, which means that liquidity has declined quite significantly over the last 10 quarters (the current ratio was 2.9 in the 2nd quarter of 2019).
Although the current ratio is an indicator of the companyOpportunity to repay its short-term debts over the next year, Align definitely has some margin due to its significant cash flows. For example, in the fourth quarter alone, the company received nearly $ 273 million in operating cash flow, of which $ 109 million was spent on capital expenditures (capacity and funds). Suffice it to say that long-term assets are undoubtedly increasing, as we will see in the next section.
The main long-term asset is AlignNet property, plant and equipment, which increased to $ 1.2 billion at the end of the fourth quarter. Approximately 100% increase in this article from the 2nd quarter of 2019 demonstrates how management is investing significant funds in business. Moreover, it cannot be said that this aggressive reinvestment is not yielding the desired results. Sales for the past 10 quarters rose more than $ 430 million, or 43%, to $ 1.031 billion at the end of the last quarter. This is a solid profit, especially considering that there is always a time gap between sustainable reinvestment and sales growth that needs to be tracked in the income statement.
The lack of debt on the balance sheet means that the company can continue to invest aggressively and at the same time give a decent profit. Although AlignGAAP operating margin fell to 21.4% in the fourth quarter, the company still reported net income of $ 191 million. This is really the key to alignment. As long as current trends continue, steady revenue and revenue growth simply needs to continue thanks to Align’s skill in generating cash flows in an above-average spending environment.
Equity rose to $ 3.62 billion at the end of the 4th quarter, which means that over the last 10 quarters this item has increased by more than 163%. No matter what the stock price has done over this period of time, the rise in net worth is how management really should be assessed. As liabilities currently amount to $ 2.31 billion, the ratio of current liabilities to equity is 0.64. The ratio was 0.70 10 quarters ago, which is encouraging as it shows that here we are dealing with smart capital allocators.
Summing up, trends on the balance sheet point to a steady strong increase in the percentage of top and bottom lines in the coming years. If the specifications really work and we get steady traffic, Align will be a potentially strong buy in the coming months. However, we must continue to respect Align’s specifications; they really are the summation of all the basics known to date. We look forward to further coverage.