Sometimes, insiders are the gift that keeps on giving.
When insiders keep returning to buy their company stock on repeat pullbacks, it’s a bullish signal.
Align Technology (ALGN) may be a case in point.
I previously suggested Align Technology, which makes clear dental aligners (braces), because of solid insider buying in late November 2022 at 194 in another publication. By the next summer, it had nearly doubled to hit 382.
Now, an insider is once again telling us Align’s stock will be an outperformer – following a sharp pullback. CEO Joe Hogan just put $1 million into the shares. This is a size signal and a CEO buy, two other positives in insider analysis.
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Align Technology invented clear dental aligners 25 years ago, and now it enjoys a dominant position.
Align offers the Align Digital Platform. This is a combination of Vivera retainers for retention, iTero intraoral scanners and services for dentistry, and exocad computer-aided design and computer-aided manufacturing software for dental laboratories.
ALGN shares just fell sharply because of another disappointing quarter. Second-quarter sales of $1 billion were up 3.4% sequentially but down 1.6% year over year. That followed a decrease of 1.8% year over year last quarter.
The company identified consumer hesitancy to spend on treatment and dentist hesitancy to invest in buying into the Align system, due in part to tariff turmoil. It’s tempting to think tariffs are the new weather, in the sense that tariffs could be the all-purpose culprit to cite when business is not going well.
But in this case, it makes sense. Surveys consistently show that consumer and CEO sentiment is low, in fact, near all-time lows in some cases. Think of dentists as the CEOs of their own businesses.
Granted, there is a long-term trend here that is a little troubling. This year marks the fourth consecutive year that orthodontic starts are down, and third-party research indicates that practices that use both wires and brackets and clear aligners may have shifted more of their case starts to metal braces in Q2, says the company. The company guided for more of the same for the rest of the year.
The Insider Buying Signal Is Just Part of the Align (ALGN) Story
So why consider buying this stock? Besides the large CEO purchase, consider these factors:
- ALGN is not just standing still. It is taking steps to move manufacturing closer to customers to reduce freight costs. It is also taking other steps to reduce costs.
- Companies can never cost-cut their way to growth. So, it is a potential positive that ALGN is taking steps to encourage dentists and health care organizations to step up efforts to direct patients towards its system.
- The insider buy is also a valuation call. Down here, ALGN trades at a 52% to 65% discount to its five-year average trailing price-to-sales ratio, and trailing p/e and forward p/e ratios.
- The negative consumer and CEO sentiment that seem to be holding back sales growth probably cannot get much worse, and it could improve if the tariff chaos resolves, and if there are signs of economic strength that improve confidence. Ed Yardeni of Yardeni Research remains bullish on the economy despite the signs of job market weakness. He cites relatively high employment levels, ongoing gains in real wages, and the large wealth of the Boomer generation. All three support consumer spending, the main driver of economic growth.
To sum up: Despite the troubling long-term trends in orthodontics that I noted above, it makes sense to consider buying this name down here. The insider buy signal is solid. There is cost-cutting in the works. And the stock is cheap relative to its history. Plus, the insider buy signal is good. Consider buying now and adding on any significant weakness.
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