Patterson Companies, Inc. (PDCO), DENTSPLY International Inc. (XRAY), Align Technology, Inc. (ALGN): Are There Investment Opportunities at Your 6-month Teeth Cleaning?

The rise of the upstart

Of course, both dental supply powerhouses should have probably noticed consumers’ dissatisfaction with traditional teeth alignment products, a trend that has propelled Align Technology, Inc. (NASDAQ:ALGN) to a strong five-year stock price gain and a multi-billion dollar valuation. The company’s Invisalign system uses clear plastic removable aligners, rather than metal braces, to treat malocclusion, a teeth misalignment condition that afflicts roughly half of the population in developed countries. Since receiving marketing approval from the FDA in 1998, Invisalign has been used by 2 million people in 45 countries, with a current dental practitioner base of roughly 34,000 around the world.

In its latest fiscal year, Align reported mixed results with a 16.7% increase in total sales, but a decline in operating income due to a goodwill write-off in its scanner business unit. The company’s top-line benefited from a 17% increase in volume, but its profitability suffered as more consumers opted for limited, less expensive treatments. However, Align continued to generate substantial operating cash flow, $134 million for the period, allowing it to reinvest in new products, including its Smarttrack next generation aligners that conform better to the teeth. In addition, the company has put the weak comparable results of last year’s third and fourth quarters behind it, recently reporting a 13% increase in volume for FY2013 and a continued expansion into international markets, with a focus on the Asia-Pacific region.

The bottom line

The dental business is going high-tech, with metal-less braces and equipment that allows practitioners to get more accurate and timely information on the health of their customers. While U.S. spending on dental services is likely to plod along at a low upward trajectory, international spending on dental services should rise as more people ascribe greater value to oral care. With a focus on international growth, Dentsply International and Align Technology, Inc. (NASDAQ:ALGN) are the ones to watch.

The article Are There Investment Opportunities at Your 6-month Teeth Cleaning? originally appeared on Fool.com and is written by Robert Hanley.

Robert Hanley owns shares of Align Technology. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.