Align Technology (ALGN)

Dental technology company Align Technology (NASDAQ:ALGN) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 1.8% year on year to $995.7 million. The company expects next quarter’s revenue to be around $1.04 billion, close to analysts’ estimates. Its non-GAAP profit of $2.61 per share was 8.4% above analysts’ consensus estimates.

Company Overview

Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ:ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.

The dental equipment and technology industry encompasses companies that manufacture orthodontic products, dental implants, imaging systems, and digital tools for dental professionals. These companies benefit from recurring revenue streams tied to consumables, ongoing maintenance, and growing demand for aesthetic and restorative dentistry. However, high R&D costs, significant capital investment requirements, and reliance on discretionary spending make them vulnerable to economic cycles. Over the next few years, tailwinds for the sector include innovation in digital workflows, such as 3D printing and AI-driven diagnostics, which enhance the efficiency and precision of dental care. However, headwinds include economic uncertainty, which could reduce patient spending on elective procedures, regulatory challenges, and potential pricing pressures from consolidated dental service organizations (DSOs).

Align Technology's competitors include 3M's Clarity aligners, Dentsply Sirona's SureSmile, Straumann's ClearCorrect, and SmileDirectClub in the clear aligner market. In the intraoral scanner space, they compete with Dentsply Sirona's CEREC, 3Shape TRIOS, and Carestream Dental scanners.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $3.98 billion in revenue over the past 12 months, Align Technology has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Align Technology’s 11.7% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Align Technology’s recent performance shows its demand has slowed as its annualized revenue growth of 2.3% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its number of clear aligner shipments, which reached 647,750 in the latest quarter. Over the last two years, Align Technology’s clear aligner shipments averaged 3.5% year-on-year growth. Because this number is in line with its revenue growth, we can see the company kept its prices fairly consistent.

This quarter, Align Technology reported modest year-on-year revenue growth of 1.8% but beat Wall Street’s estimates by 2.2%. Company management is currently guiding for a 4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its newer products and services will not lead to better top-line performance yet.

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Align Technology has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average adjusted operating margin of 23.2%.

Looking at the trend in its profitability, Align Technology’s adjusted operating margin decreased by 7.2 percentage points over the last five years, but it rose by 1.8 percentage points on a two-year basis. Still, shareholders will want to see Align Technology become more profitable in the future.

In Q3, Align Technology generated an adjusted operating margin profit margin of 23.9%, up 1.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Align Technology’s EPS grew at an astounding 17.1% compounded annual growth rate over the last five years, higher than its 11.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its adjusted operating margin didn’t improve.

Diving into Align Technology’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Align Technology has repurchased its stock, shrinking its share count by 8.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q3, Align Technology reported adjusted EPS of $2.61, up from $2.35 in the same quarter last year. This print beat analysts’ estimates by 8.4%. Over the next 12 months, Wall Street expects Align Technology’s full-year EPS of $9.67 to grow 10.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Align Technology has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 15.1% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Align Technology’s margin dropped by 11.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Align Technology hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 19.8%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Align Technology’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

Align Technology is a profitable, well-capitalized company with $1.00 billion of cash and $87.28 million of debt on its balance sheet. This $917.3 million net cash position is 9.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Align Technology beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 15.5% to $152.50 immediately after reporting.

Updated: December 3, 2025 at 10:56 PM EST

Before investing in or passing on Align Technology, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Align Technology isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its cash profitability fell over the last five years.

Align Technology’s P/E ratio based on the next 12 months is 14x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $184.07 on the company (compared to the current share price of $154.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.