Last update on 2024-06-06

Align Technology (ALGN) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Comprehensive Piotroski F-Score analysis of Align Technology (ALGN) for 2023, highlighting financial performance and criteria evaluations.

Short Analysis - Piotroski Score: 7

We're running Align Technology (ALGN) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score assesses the overall financial health of Align Technology (ALGN) by checking 9 separate areas like profitability, liquidity, and efficiency. ALGN scored a 7 out of 9 in this scoring system, suggesting a strong financial standing. Key indicators for profitability, such as net income, cash flow from operations, and return on assets, were positive. In terms of liquidity, while the current ratio showed a slight decline, the company has reduced its financial leverage. Efficiency metrics indicated a generally positive trend, though there was a minor decrease in the gross margin.

Insights for Value Investors Seeking Stable Income

Based on the given analyses, ALGN seems to be a strong investment candidate with a Piotroski score of 7, which indicates good financial health and potential for growth. Investors looking for an investment in the tech sector with strong fundamentals should consider taking a deeper look into ALGN, recognizing however that there are aspects such as the current ratio and slight decline in the gross margin that warrant further monitoring.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Align Technology (ALGN)

Company has a positive net income?

A positive net income indicates profitability, showing that the company generates more revenue than expenses.

Align Technology (ALGN) reported a positive net income of $445,053,000 in 2023, which adds 1 point in the Piotroski analysis. Over the past 20 years, ALGN has demonstrated fluctuating net income figures, ranging from a loss of $34,963,000 in 2006 to a significant profit of $1,775,888,000 in 2020. The trend showcases the company's growth and struggles, but the recent positive net income reinforces its current profitability and business health.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the amount of cash generated by a company's regular operating activities and is crucial for assessing the company's liquidity and financial stability.

For Align Technology (ALGN) in 2023, the CFO stands at $785.776 million, which is a positive figure. A positive CFO is a strong indicator of a company's ability to generate sufficient cash from its core business operations. Observing the past 20 years, except for 2006, ALGN has consistently posted positive CFO figures, demonstrating strong operational efficiency. With increasing CFO, particularly the growth from $568.732 million in 2022 to $785.776 million in 2023, the company shows robust financial health and strong cash generation capability. This positive trend earns the company 1 point in the Piotroski analysis.

Return on Assets (ROA) are growing?

Compare the ROA of 0.074 in 2023 with the ROA of 0.0608 in 2022. If the ROA increased in 2023, add 1 point. Otherwise, set it to 0.

Align Technology (ALGN) saw an increase in its Return on Assets (ROA) from 0.0608 in 2022 to 0.074 in 2023. This indicates an improvement in the company's efficiency at generating profit from its assets. Historically, over the past 20 years, Align's ROA has shown considerable fluctuation, oscillating around lower values compared to the industry median. Specifically, the industry median ROA in 2023 stands at 0.6463, substantially higher than Align's 0.074. While the increase from 2022 is a positive sign, the significant lag behind the industry median may raise concerns about competitive positioning and operational efficiency.

Operating Cashflow are higher than Netincome?

To determine whether operating cash flow is higher than net income for Align Technology (ALGN) in a given year. This criterion assesses the quality of earnings, as robust operating cash flow suggests that earnings are being supported by real cash profits rather than accounting adjustments.

For the year 2023, Align Technology (ALGN) reported an operating cash flow of $785.78 million and a net income of $445.05 million. The operating cash flow exceeds the net income, which adds a positive point to this criterion. Analyzing historical data from the past two decades, ALGN's operating cash flow has generally shown consistent growth (e.g., $12.12M in 2003 to $785.78M in 2023). In contrast, net income has also exhibited growth but with more variability, including losses in some years. This consistent positive operating cash flow underscores solid operational efficiency and is a favorable indicator for investors. Therefore, this criterion earns a positive score of 1.

Liquidity of Align Technology (ALGN)

Leverage is declining?

Change in Leverage evaluates if a company's financial leverage has decreased compared to the previous year, indicative of reduced financial risk.

The leverage for Align Technology (ALGN) has decreased from 0.0169 in 2022 to 0.0159 in 2023, thereby adding 1 point to the Piotroski score for this criterion. This downward trend in leverage signifies that ALGN has been able to reduce its reliance on external debt, thus decreasing its financial risk. Historically, comparing the leverage over the past 20 years, the company experienced periods of zero leverage from 2004 to 2017, with a slight uptick from 2019 onwards. This consistent reduction in leverage is a positive indicator of financial stability.

Current Ratio is growing?

Change in Current Ratio is the difference between company's ability to pay short-term obligations in 2023 relative to 2022.

The Current Ratio for Align Technology (ALGN) decreased from 1.2588 in 2022 to 1.1839 in 2023. This represents a decline in the company's liquidity, indicating a slightly reduced ability to cover short-term obligations with its current assets. Trends over the last twenty years also show a significant decrease from ratios above 2 in the early 2000s to below 1.2 recently. This trend is troubling when juxtaposed with the industry median, which has largely remained higher than Align's Current Ratio.

Number of shares not diluted?

The change in shares outstanding evaluates whether a company is diluting its shares, which is important to understand shareholder value.

In comparing the outstanding shares, Align Technology (ALGN) had 78,190,000 shares in 2022 and decreased to 76,426,000 shares in 2023. This represents a decrease in outstanding shares, earning it 1 point for this criterion. A decreasing number of outstanding shares is often viewed positively as it indicates the company is either buying back shares or other activities that consolidate shareholder value. Historically, the trend shows occasional fluctuations, but the recent decrease indicates a strong position towards reducing dilution and potentially increasing earnings per share.

Operating of Align Technology (ALGN)

Cross Margin is growing?

Gross margin measures the portion of revenue that exceeds the cost of goods sold. It's crucial for evaluating the core profitability of a company.

In 2023, Align Technology (ALGN) posted a Gross Margin of 0.7008, compared to 0.7052 in 2022. This represents a slight decrease of 0.0044, or 0.62%. Historically, Align has seen higher Gross Margins, such as 0.7426 in 2021 and even up to 0.7838 in 2010. When benchmarked against the industry median, Align consistently outperforms, given the industry's Gross Margin of 0.6463 in 2023. Despite this slight year-over-year decline, the company's gross margin remains strong and well above industry norms, indicating robust pricing power and cost management.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales. It's critical for evaluating operational efficiency.

Align Technology's asset turnover improved from 0.6282 in 2022 to 0.642 in 2023. This increase is a positive indicator of enhanced operational efficiency, suggesting that the company has become more efficient at utilizing its assets to generate revenue. Historically, Align Technology has seen higher asset turnover ratios, peaking at 1.5192 in 2007, but the recent upward trend from 2022 to 2023 is encouraging. The 2023 improvement results in 1 point.