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Align Technology(ALGN-Q)
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Is It Time to Buy the Nasdaq's Worst-Performing September Stocks?

Motley Fool - Mon Oct 9, 2023

Autumn is here, and the stock market looks like it's going into hibernation. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all down roughly 7% since the start of August.

^SPX Chart

^SPX data by YCharts.

So, with the market on the ropes, is now the time for investors to go bargain hunting? Let's look at some of the hardest-hit names from the Nasdaq 100 to find out.

A falling red stock chart.

Image source: Getty Images.

Peloton Interactive

Shares of Peloton Interactive(NASDAQ: PTON), a maker of home fitness equipment, were down 23% in September. That's bad, but the picture gets even worse when you zoom out: Shares have declined 97% from their all-time high, set in 2021.

Unfortunately for Peloton, its fundamentals reinforce the stock's weak price action. Trailing-12-month (TTM) revenue has declined from $4.1 billion to $2.8 billion; positive free cash flow and net income have flipped to losses; net debt has grown to $872 million.

Worse still, high inflation and the weak economy appear to be weighing on demand for its products. Investors would be wise to look elsewhere.

Align Technology

There's no doubt about it: September stunk for dental appliance maker Align Technology(NASDAQ: ALGN) as shares retreated almost 19%. There is more to the story, though: Align's stock remains up nearly 38% year to date despite the horrible September. Indeed, shares were up more than 75% heading into last month.

At any rate, the decline isn't backed by much in the way of news. The only notable catalyst appears to be Align's purchase of Cubicure, an Austrian 3D-printing firm. That acquisition, valued at 79 million euros ($83.16 million), will allow Align to expand its 3D printing capabilities for its aligners and dental appliances.

As of its latest quarterly report (for the period ending on June 30), Align's fundamentals looked solid. The company has generated $3.7 billion in revenue and $314 million in net income over the past 12 months; it's net debt-free and has positive free cash flow. What's more, analysts expect the company to grow sales by about 12% next year.

Granted, shares trade at a gaudy price-to-earnings (P/E) ratio of over 70. But for growth-oriented investors willing to stick with a volatile stock for the long term, Align is a name to consider.

DocuSign

Last up is DocuSign(NASDAQ: DOCU), the technology company behind the ubiquitous e-signature software of the same name. Shares of DocuSign tumbled almost 19% last month and are down nearly 26% year to date.

It's been another trying year for DocuSign, which skyrocketed during the pandemic years but has struggled since. Shares are now down more than 86% from their all-time high, set in 2021.

But the question remains: Does DocuSign have a brighter future? The fundamentals are mixed, at best.

Revenue is still growing, quite impressively in fact. As of its most recent quarter (ending July 31), TTM revenue was $2.7 billion. Quarterly revenue grew 11% year over year. The company's 12-month loss narrowed to only $17 million (it lost over $220 million in 2021). Moreover, DocuSign has no net debt and generated $547 million in free cash flow over the last 12 months.

But there are troubles, too. Deep-pocketed competitors like Adobe have their own e-signature offerings, and it's unclear whether future demand for e-signatures will live up to the lofty expectations that were set during the pandemic years, when nearly all business had to occur online.

Investors considering DocuSign should remain cautious. This volatile stock isn't for everyone.

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Jake Lerch has positions in Adobe. The Motley Fool has positions in and recommends Adobe, Align Technology, DocuSign, and Peloton Interactive. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe, long January 2024 $60 calls on DocuSign, and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.

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