Alignment technology (NASDAQ:ALGN) has seen its shares fall 25% this week, according to data from S&P Global Market Intelligence. The stock is down more than 53% so far this year; it had a 52-week high of $737.45 and a low of $270.37. It closed at $360.57 last Friday and hit a weekly low of $304.66 on Thursday. The company manufactures and sells both Invisalign clear aligners and iTero intraoral scanners and services for orthodontists and general dentists. Its two segments are “clear aligner” and “scanners and services”.
The company released its first-quarter earnings report after the market closed on Wednesday; Align’s numbers, while mostly up year over year, were all down from the fourth quarter, a concerning trend. Investors may also have been spooked when the company withdrew its guidelines for the time being.
Align reported revenue of $973.2 million, down 5.6% sequentially. The company’s earnings per share (EPS) of $1.70 was down from $2.40 in the fourth quarter of 2021 and $2.51 in the first quarter of last year. The company reported net income of $168.7 million, down 29.7% sequentially and 33% year-over-year.
CEO Joe Hogan said there were several factors driving the decline: COVID lockdowns, particularly in China; declining consumer confidence in the United States; inflationary pressures; and the Russia/Ukraine conflict. The problem for Align is that its products are seen as discretionary healthcare spending, and it’s one of the first places consumers look to cut back when they’re belt-tightening.
Investors will want to see if the first quarter numbers are an outlier or the start of a trend for the healthcare stock. Align’s scanners and services segment was particularly hard hit in the first quarter, with a 24.2% sequential decline in revenue. The first quarter, however, is often slower for capital expenditures for dentists and orthodontists, so this segment could easily rebound. Meanwhile, the company’s broader segment, “transparent aligner,” was down just 7% sequentially and up 7.5% year-over-year.
More concerning is the company’s declining margins over the past two quarters, possibly due to inflation. In the third quarter of 2021, the profit margin was 25.7%, but in the fourth quarter it had fallen to 21.4%, and in the first quarter of 2022 it was 20.4%.
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Jim Halley has no position in the stocks mentioned. The Motley Fool fills positions and recommends Align Technology. The Motley Fool has a disclosure policy.
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