Is Align Technology (ALGN) a 3D Printing Stock?
We’re almost three quarters of the way through the year now and the bull is still charging. Since our focus is on investing in emerging technologies, we can use the NASDAQ 100 Index (the top 100 companies traded on the NASDAQ exchange) as a benchmark for tech stocks. There is a popular exchange traded fund (ETF) that tracks the NASDAQ 100 called the PowerShares QQQ Trust or QQQ. It’s one of the biggest and most traded ETFs in the world, and it’s up +20.5% this year. The ETF is heavily weighted towards technology with the following 9 technology stocks accounting for more than 50% of QQQ’s weight.
If you bought a technology stock at the beginning of this year, it better have outperformed the QQQ ETF otherwise that means you made a bad choice (all things considered). You could have just purchased the “low risk” diversified ETF instead of assuming company-specific risk by just purchasing a single stock. Here are how some of the tech stocks we’ve talked about before have performed since the beginning of this year:
- Ad Technology
Alphabet (NASDAQ:GOOG) – +19%
- 3D Printing
Stratasys (NASDAQ:SSYS) – +35%
Illumina (NASDAQ:ILMN) – +57%
- Artificial Intelligence
NVIDIA Corporation (NASDAQ:NVDA) – +60%
- Electric Cars
Tesla (NASDAQ:TSLA) – +62%
- Machine Vision
Cognex Corporation (NASDAQ:CGNX) – +71%
- 3D Printing?
Align Technology (NASDAQ:ALGN) – +92%
These are all fairly popular technology stocks except the last two; Cognex Corporation and Align Technology. Cognex we talked about back in February of 2016 when we wrote about Cognex Machine Vision – Bionic Eyes for Robots, and then more recently in our article on A Machine Vision Stock for Investors to Watch. The last stock listed above, Align Technologies, may not be on too many people’s radar but it recently came across ours when we noted a number of articles associating the company with 3D printing. We decided to take a closer look.
Founded in 1997, Align Technology is responsible for the brand name “Invisalign” which refers to the “clear aligners” that are used by orthodontists for straightening out crooked teeth. Since they began marketing Invisalign back in 2000, the company has sold more than 327 million aligners to more than 4 million patients around the globe. In case you’re not familiar with the device, here’s how it works.
The whole process starts with an Invisalign trained doctor (there are +123,000 of them) who will evaluate your crooked teeth and take an impression of your mouth, most likely with a tool that looks like this:
That contraption you see above is called iTero and it comes from an Israeli startup called Cadent that Align acquired about 6 years ago. Some of our readers may recall going to the dentist and having to bite down on a tray of clay so the doctor could take an impression of your teeth. Enter the modern era now where a 3D scanner can quickly assess over 100,000 points within your mouth and quickly create a digital image of your teeth in a matter of minutes that can then be uploaded to the cloud where the entire treatment plan can be laid out digitally. Of course, you also have the added value of less time spent during checkups and fewer problems with the aligners not fitting properly.
Once the doctor has recommended a treatment plan (which can last anywhere from 12-24 months), Align will then ship to your house a custom aligner to wear as often as once per week. Over time, the aligners slowly change shape which straighten your teeth out and make your wallet $2,000 – $4,000 lighter. This is a pretty straightforward business model and it’s made possible by a huge collection of 3D printers that Align has purchased from 3D Systems (NYSE:DDD) according to a recent article by Forbes which Align uses to produce 220,000 unique liners every single day.
Back of the napkin math tells us that in order to produce 220,000 aligners a day, Align must be printing them at a rate of 2.54 per second, 24 hours a day. If a 3D printer could print one aligner per minute, then Align would need 152 printers without taking into account any downtime needed for maintenance. (When we look at the 3D Systems latest filing, we see how healthcare related applications have grown 25% over the previous year to now account for 30% of 3D Systems total revenues. This growth can also be explained in part by an acquisition 3D Systems made in January of this year when they acquired Vertex-Global Holding which manufactures dental products for 3D printing.)
The growth story for Align is one that reflects rapid adoption and a large potential market to address. According to their latest filing, Align estimates that they have only captured 10% of the total addressable market (TAM). Even with just a fraction of the total market, they still managed to clear $1 billion in revenues in 2016, a number that continues to grow as seen below:
Align is a rapidly growing company that is profitable and presently sits on more than $645 million in cash. Revenues are geographically diversified which shows that demand for these devices extends across the globe, and the process is culturally acceptable in the +90 countries where these products are sold.
While the growth story has been solid so far, investors need to be aware of several risk factors. While Align has more than 800 patents protecting their technology, they expect some of their key patents to expire in October of this year and cite companies like 3M as potential competition. Since this is a cosmetic procedure, patients often need to pay meaningful amounts of money out-of-pocket for these treatments. Should the economy decide to go south, people will tighten their purse strings on procedures like these that are nice to have.
3D Printing stocks haven’t performed well, with picks-and-shovels plays like Stratasys and 3D Systems still trying to recover from when the 3DP bubble deflated. The largest pure-play 3D printing company at the moment, 3D Systems, has a market cap of of just $1.5 billion which is just one-tenth the size of Align Technology. While the hype has all but vanished, the original value proposition for 3D printing has not changed at all. Companies like Align Technology are using 3D printing to allow for mass customization, with other companies like Adidas following suit with custom 3D printed shoes. All of these mass customization business models represent the vision of distributed additive manufacturing that investors first imagined with the promise of 3D printing. Let’s hope that more of these picks-and-shovels 3DP stocks start performing better than the NASDAQ 100 benchmark.