Align Technology’s Stock Is Beaten Down, But A Strong Recovery May Be Imminent

The stock price of Align Technology (NASDAQ: ALGN), a manufacturer of digital scanners and aligners used in orthodontics, has seen its stock price decline by about close to 25% year-to-date. However, by comparing the trend in Align’s stock over recent months with its trajectory during and after the Great Recession of 2008 we believe that the stock could potentially recover strongly once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Align’s performance against the S&P 500 is available in our interactive dashboard analysis, How Did Align Technology Stock Fare During Coronavirus Crisis Compared to S&P 500? 

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. While Align stock lost 50% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown.  That said, the multi-billion dollar stimulus package announced by the U.S. government helped the stock price recover 55% over recent weeks (vs. about 29% gain in the S&P 500)  to its current level of $210.

Align Technology Stock Fell Significantly Because The Situation On The Ground Has Changed

The spread of the coronavirus pandemic has meant that few people are visiting dentists at the moment for non-emergency procedures such as aligning their teeth, causing demand for Align Technology’s popular Invisalign solutions to plummet since mid-March.  While the U.S. is now starting to open up, with the pandemic easing to a certain extent in Europe as well, it remains to be seen how quickly dentists and orthodontists get back to their practices and how quickly patients will come back considering that many orthodontic procedures remain elective and require relatively close contact between professionals and patients.  Align Technology has not provided guidance for Q2 and also withdrew its guidance that it previously provided for full-year 2020.

But Align Technology Stock  Fared Worse During The 2008 Downturn

We see Align stock declined from levels of around $27 in October 2007 (the pre-crisis peak) to roughly $7 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 75% of its value from its approximate pre-crisis peak. This marked a lower decline than the broader S&P, which fell by about 51%.

Align stock recovered relatively strongly post the 2008 crisis to about $18 in early 2010 – rising by 160% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. 

Will Align Technology Recover Similarly From The Current Crisis?

Align stock fell 50% from the market peak on February 19 to the low on March 23 compared to 34% for the S&P over the same time frame. This compares to a 74% decline during the 2008 recession, after which it recovered 160% over the next three quarters or so. This implies that the stock could rebound more strongly as things get better and revenues improve. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.