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Align Technology Inc. Stock Downgraded (ALGN)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (TheStreet) -- Align Technology (Nasdaq:ALGN) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share.

  • EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

Highlights from the ratings report include:

  • The revenue growth greatly exceeded the industry average of 23.8%. Since the same quarter one year prior, revenues rose by 13.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • ALGN has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.31, which clearly demonstrates the ability to cover short-term cash needs.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income has significantly decreased by 300.1% when compared to the same quarter one year ago, falling from $20.98 million to -$41.98 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, ALIGN TECHNOLOGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
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Align Technology, Inc. operates as a medical device company primarily in the United States and internationally. The company has a P/E ratio of 43.4, above the S&P 500 P/E ratio of 17.7. Align Technology has a market cap of $2.52 billion and is part of the health care sector and health services industry. Shares are up 10.9% year to date as of the close of trading on Friday.

You can view the full Align Technology Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

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