Hedgeye adds Align Technology stock to its list of short ideas

Align Technology Inc (NASDAQ: ALGN) is keeping in the green at writing even after Hedgeye named it a new short idea on Friday. 

Shares of the 3D digital scanners company are down more than 20% versus their year-to-date high. 

Align Technology stock has 20% downside

Hedgeye added Align Technology to its list of short recommendations this morning. Analysts at the investment research firm forecast up to a 20% downside in ALGN. 

Tom Tobin of Hedgeye expects the Nasdaq-listed firm to see weakness in North America in the second quarter of 2024. In fact, he’s convinced that Align Technology will come in shy of revenue estimates that will “serve as a significant catalyst for a short position”. 

Align Technology stock is a new short idea particularly because a weaker Q2 will likely be punished more aggressively after “the company’s recent upward revision of its 2024 guidance”. 

ALGN will fail to maintain its current multiple

Align Technology has a solid correlation with per-share earnings estimates. So far, it has managed to trade at or above a multiple of 20 times forward. 

But Tom Tobin recommends building a short position in Align Technology stock as he expects a “more subdued outlook for the second half of 2024, increasing macroeconomic concerns, and lower projections for 2025”. 

Together, the aforementioned factors, he added in a note on Friday, may see ALGN shares trade at under 20 times forward P/E ratio that translates to a price of less than $200 – or down about 20% from here. 

Align Technology does not currently pay a dividend either. 

Align Technology achieved several milestones in Q1

Hedgeye cited several reasons for its bearish view on Align Technology stock on Friday. These include escalating dental labour costs and decelerating real income growth. 

Rising treatment financing costs also make ALGN shares worth shorting as well, the investment research firm added in its report on Friday. 

The news arrives a couple months after Align Technology reported just under $1.0 billion in revenue for its first financial quarter – a 4.3% increase on a year-over-year basis. Joe Hogan – chief executive of the Nasdaq-listed firm said at the time:

During the quarter, we achieved several significant milestones. We completed the acquisition of Cubicure, we successfully launched the iTero Lumina intraoral scanner, we launched the Invisalign Palatal Expander system in the U.S. and Canada.

Align Technology secured approval for Invisalign Palatal Expander in New Zealand and Australia in the first quarter as well. Note that Wall Street does not share the pessimism of Hedgeye on Align Technology stock and rates it at “overweight” on average at writing.

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