Adding Align Technology as Top Short Idea

We believe that ALGN is a promising short opportunity as we head into the second half of 2024 for several reasons. We have been exploring ways to increase our exposure to discretionary medical spending on the short side, moving beyond our existing short position in EYE by adding PDCO recently. Our analysis indicates ongoing weakness in ALGN’s North American GP utilization leading up to the second quarter of 2024, along with a slight revenue miss in the same period. This presents a good opportunity for a short position, especially following the company’s recent upward revision of guidance for 2024.

ALGN’s stock performance is closely tied to EPS estimates, with a notable floor at 20 times forward P/E. We anticipate a more challenging outlook for the second half of 2024, compounded by growing macroeconomic concerns and reduced forecasts for 2025. These factors could potentially break through the 20X floor and drive ALGN’s stock price below $200, representing a 20% drop from its current level.