Align Technology (NASDAQ:ALGN) may not be a potential multi-bagger based on its current financial metrics. Two important indicators to look for in a company are a growing return on capital employed (ROCE) and an expansion in its amount of capital employed. These metrics signify a strong business model with profitable reinvestment opportunities.
ROCE is a metric that evaluates how much pre-tax income a company earns on the capital invested in its business. For Align Technology, the formula for calculating ROCE is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) รท (Total Assets &https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPTRZMW9YNmN4ek93QXBic0NhZGZFZUZsZ2lIbmlrVkU4eU1FMUhhbnByYnpSck9XSXhhMUJFVEU1amR6MDk-8211; Current Liabilities)
Based on the trailing twelve months to March 2023, Align Technology&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPTRZMW9YNmN4ek93QXBic0NhZGZFZUZsZ2lIbmlrVkU4eU1FMUhhbnByYnpSck9XSXhhMUJFVEU1amR6MDk-8217;s ROCE is 15%. While this is a standard return, it is higher than the 9.1% generated by the Medical Equipment industry.
Looking at the trend of ROCE for Align Technology, there isn&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPTRZMW9YNmN4ek93QXBic0NhZGZFZUZsZ2lIbmlrVkU4eU1FMUhhbnByYnpSck9XSXhhMUJFVEU1amR6MDk-8217;t much confidence to be gained. Five years ago, the returns on capital were 31%, but they have since fallen to 15%. Additionally, the company is utilizing more capital, but this hasn&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPTRZMW9YNmN4ek93QXBic0NhZGZFZUZsZ2lIbmlrVkU4eU1FMUhhbnByYnpSck9XSXhhMUJFVEU1amR6MDk-8217;t resulted in significant sales growth in the past 12 months. It may take time before the investments lead to a change in earnings.
Overall, while there is some encouragement from Align Technology&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPTRZMW9YNmN4ek93QXBic0NhZGZFZUZsZ2lIbmlrVkU4eU1FMUhhbnByYnpSck9XSXhhMUJFVEU1amR6MDk-8217;s reinvestment in its own business, returns are shrinking. As a result, the total return to shareholders over the last five years has been flat. This lack of multi-bagger traits suggests that investors may have better luck elsewhere.
It&https://adarima.org/?aHR0cHM6Ly9tY3J5cHRvLmNsdWIvY2F0ZWdvcnJ5Lz93cHNhZmVsaW5rPTRZMW9YNmN4ek93QXBic0NhZGZFZUZsZ2lIbmlrVkU4eU1FMUhhbnByYnpSck9XSXhhMUJFVEU1amR6MDk-8217;s worth noting that there is one warning sign for Align Technology that investors should be aware of. For those interested in investing in solid companies, a list of companies with solid balance sheets and high returns on equity is available for free.
Valuation of a company can be complex, but a comprehensive analysis of Align Technology can help determine whether it is potentially over or undervalued. This analysis includes fair value estimates, risks and warnings, dividends, insider transactions, and the financial health of the company.
In conclusion, while this analysis provides insights based on historical data and analyst forecasts, it is important to note that it does not constitute financial advice. The analysis does not take into account individual objectives or financial situations. Investors should conduct their own research and consider the latest price-sensitive company announcements before making any investment decisions.
