ALGN’s Revenue Miss and Potential 20% Decline: A Short Position Opportunity in Medical Spending

Our analysis indicates that ALGN’s North American GP utilization is expected to remain soft in the second quarter of 2024, potentially resulting in a slight revenue miss. This could serve as a significant catalyst for a short position, especially following the company’s recent guidance upgrade for 2024.

Our focus on discretionary medical spending has led us to expand beyond our short position in EYE by adding PDCO to our portfolio. We believe that ALGN is a compelling short opportunity going into the second half of 2024 for various reasons.

The correlation between ALGN shares and EPS estimates is quite strong, with a seeming resistance at a 20X forward P/E multiple. However, we anticipate a more subdued outlook for the second half of 2024, along with increasing macroeconomic uncertainties and lower 2025 estimates, to potentially break this resistance level. In such a scenario, ALGN could drop below $200, representing a potential decline of 20% from its current level.