wanted to discuss valuation on align technology because the market is sleeping on this stock right now. everyone is worrying about short term margin noise but if you check the sec filings from the latest 10-k and 10-q forms, the actual balance sheet tell a completely different story. if you invest right now around current levels, it will perform at least 111% profit once the valuation normalizes.
looking at the raw numbers from the recent sec filings, the stock is trading right around 169.16 per share with about 72 million shares outstanding. that gives align technology a market cap of 12.11 billion. they hold 1.1 billion in cash and cash equivalents with zero long term debt. that means enterprise value comes out to market cap minus cash plus debt, which gives us an enterprise value of 11.01 billion.
checking the earnings metrics from the 10-k and 10-q reports, trailing ebitda sits right around 900 million. this puts their ev to ebitda ratio at 13.3x, which is very low compared to their historical average of 24.5x. trailing p/e ratio is floating around 29.3x based on trailing eps of 5.77 per share. gross margins in q1 came in strong at 70.8 percent, up over 5 percentage points sequentially.
running the dcf math step by step using real filing data gives a clear picture. baseline free cash flow is 500 million, calculated as operating cash flow minus capital expenditures. assuming a realistic recovery where free cash flow grows at 14 percent annually over the next 5 years as clear aligners expand globally, year 1 free cash flow becomes 570 million, year 2 is 649.8 million, year 3 is 740.8 million, year 4 is 844.5 million, and year 5 reaches 962.7 million.
using a conservative wacc discount rate of 8.5 percent to discount each annual cash flow back to present value gives 525.3 million for year 1, 552.1 million for year 2, 580.3 million for year 3, 609.9 million for year 4, and 641.1 million for year 5. sum of the 5 year discounted cash flows is 2.91 billion.
for terminal value, applying a conservative terminal multiple of 22x to year 5 free cash flow gives 21.18 billion. discounting that back 5 years at 8.5 percent yields a present terminal value of 14.09 billion. adding the present value of cash flows of 2.91 billion to the present terminal value of 14.09 billion gives a total dcf enterprise value of 17 billion.
adding back the 1.1 billion cash balance and dividing by 72 million shares gives a dcf fair value per share of 356.94 per share. compared to the current price around 169.16, it will perform at least 111% profit for anyone buying today.
theoretically the stock could drop further in the short term due to broad dental market weakness, but it would be temporary. with 1.1 billion in cash and zero debt backing the balance sheet, long term holders are positioned for huge upside.