We recently compiled a list of the 10 Worst Performing Healthcare Stocks in 2024. In this article, we are going to take a look at where Align Technology, Inc. (NASDAQ:ALGN) stands against the other healthcare stocks.
The Evolving Landscape of Global Healthcare Spending and Innovation
The healthcare industry remains a vital and resilient sector which is driven by advancements in technology, increasing global demand, and an aging population. ReportLinker projects that the healthcare services industry will grow from $7.5 trillion in 2022 to $7.975 trillion in 2023. It is anticipated to increase at a compound annual growth rate (CAGR) of 6.3%, or $9.8 trillion, through 2027. The global healthcare market is divided into several segments, including hospitals, digital health, and healthcare services. The hospital market alone is predicted to grow by 4.18% a year between 2024 and 2029, reaching a market value of $5.19 trillion.
In 2021, worldwide healthcare spending reached a record $9.8 trillion, or 10.3% of global GDP, according to a report released by the World Health Organization in December 2023. Spending was not uniformly dispersed, either, with low-income nations becoming more dependent on foreign help as government health spending declined. High-income nations spent about $4,000 per capita on health care, but 11% of the world’s population resided in nations that spent less than $50 per person. Even while public health spending increased during COVID-19, this trend is unlikely to continue because nations are dealing with issues like high inflation, weak growth, and mounting debt.
According to the Centers for Medicare and Medicaid Services (CMS), national healthcare spending is projected to reach an estimated $4.8 trillion in 2023 and grow at an annual rate of 5.6% between 2027 and 2032.
A patient-centered, technology-driven revolution is taking place in the healthcare industry. Thanks to the epidemic, telehealth has become widely accepted; in 2023, the global market was estimated to be worth $60.15 billion and is predicted to continue growing. By 2028, the genomics-driven precision medicine market, which provides individualized therapies based on genetic composition, is expected to reach $50.2 billion. With $31.5 billion in equity funding from 2019 to 2022 and the potential for $360 billion in annual US savings over the next five years, AI is also revolutionizing healthcare. The global market for remote patient monitoring (RPM), which was valued at $71.9 billion in 2023, is expected to continue expanding thanks to wearable technology.
Dr Bruce Aylward, WHO Assistant Director-General, Universal Health Coverage, Life Course, said:
“Sustained public financing on health is urgently needed to progress towards universal health coverage. It is especially critical at this time when the world is confronted by the climate crisis, conflicts, and other complex emergencies. People’s health and well-being need to be protected by resilient health systems that can also withstand these shocks.”
The Looming Collapse of U.S. Healthcare
The most concerning aspect of the healthcare industry is the looming collapse of the U.S. healthcare system, particularly in terms of workforce shortages and financial instability. The healthcare industry is facing a severe staffing crisis. By 2030, it is projected that 124,000 more physicians will be needed, and 800,000 registered nurses (RNs) are anticipated to leave the profession by 2027. The current turnover rate for staff RNs is a staggering 24%. This shortage has led to the closure of vital patient services, including Pediatrics, Psychiatry, Obstetrics, and ICUs in some healthcare systems.
Despite these challenges, the U.S. continues to spend nearly twice as much on healthcare as the OECD average, with worse outcomes on average. This disparity highlights the inefficiency and unsustainability of the current system. Additionally, 58% of hospital bad debt comes from insured patients, further straining the revenue cycle and limiting funds available for clinical services. The combination of these factors paints a grim picture of the U.S. healthcare system’s future. Without significant intervention and reform, the industry risks a systemic collapse that could have far-reaching consequences for public health and the economy.
Our Methodology
In our methodology, we used a stock screener to pick stocks with a market capitalization above $10 billion and assessed their year-to-date (YTD) returns. We subsequently identified those with underwhelming YTD performance as of November 11 and ranked them accordingly.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An orthodontist examining a patient’s teeth with a intraoral scanner, demonstrating the precision of the company’s technology.
Align Technology, Inc. (NASDAQ:ALGN)
Total YTD Return: -21.16%
Align Technology, Inc. (NASDAQ:ALGN) is a medical device company that specializes in orthodontic and dental solutions, primarily known for its Invisalign system—a series of clear plastic aligners that straighten teeth as an alternative to traditional metal braces. The company also produces intraoral scanners, like the iTero line, used by dentists and orthodontists to create 3D digital impressions of patients’ teeth.
Align Technology, Inc. (NASDAQ:ALGN) has invested significantly in research and development, recently launching the Palatal Expander system—a 3D-printed orthodontic device designed to widen the upper arch in growing patients. This system has received positive feedback from doctors and patients and is expected to drive significant growth for the company.
In the third quarter of 2024, Align Technology, Inc. (NASDAQ:ALGN) reported total revenues of $977.9 million, a modest increase of 1.8% year-over-year. However, this growth was overshadowed by a 5.4% sequential decline in Clear Aligner revenues, which totaled $786.8 million. The company’s diluted net income per share was $1.55, down from $1.59 in the same quarter last year. Notably, foreign exchange fluctuations negatively impacted revenues by approximately $14.6 million year-over-year.
Align Technology, Inc. (NASDAQ:ALGN)’s operating income for Q3 2024 was $162.3 million, translating to an operating margin of 16.6% (non-GAAP operating margin of 22.1%). The decline in profitability is concerning, especially given that operating expenses rose significantly, with selling, general, and administrative costs increasing to $434.1 million compared to $408 million in Q3 2023. This increase in costs, coupled with declining revenues from their core product line, has raised alarms about the company’s ability to maintain profitability. Moreover, ALGN has declined by more than 21% since the start of 2024, which makes it one of the worst performing healthcare stocks.
As tracked by the Insider Monkey database, 50 hedge fund holders held shares in Align Technology, Inc. (NASDAQ:ALGN) in Q3 2024, with Citadel Investment Group being the largest stakeholder owning shares worth $394.5 million.
Overall ALGN ranks 7th on our list of the worst performing healthcare stocks in 2024. While we acknowledge the potential of ALGN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALGN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.