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This Little-Known Healthcare Stock Could Be the Tesla of Its Niche

In less than 15 years, Elon Musk and the team at Tesla (NASDAQ: TSLA) have accomplished something that few could have predicted: They redefined how Americans viewed electric cars. Along the way, the company even managed to become -- briefly -- the largest U.S. automaker in terms of market cap.

Tesla is arguably a one-of-a-kind company. However, there is an innovator shaking things up in another industry in significant ways that shares some of Tesla's qualities. Here's why Align Technology (NASDAQ: ALGN) could be viewed as the Tesla of its niche market in orthodontic care. 

Image source: Getty Images.

Disruptive product

Cars have been around since the late 19th century. Tesla has achieved much of its success by disrupting the old order with new vehicles that have enormous customer appeal: looks, speed, environmental advantages, and more. 

Align Technology is also disrupting a long-established business: the field of orthodontic braces. And, like Tesla's cars, Align's medical devices have enormous customer appeal. Its flagship product is the Invisalign clear aligner. These aligners straighten teeth as effectively as braces in many cases, but they're practically invisible. No longer do teens and adults have to deal with the "metal mouth" stigma associated with traditional metal-and-wire braces.

Just as other companies besides Tesla make electric cars, Align Technology faces challengers in its niche. However, the company has been able to differentiate itself by providing faster treatment times, better comfort, and continued innovation. Faster, better, more innovative... that kind of sounds like a certain car company, doesn't it?

Game-changing infrastructure

One key component of Tesla's success was that it invested in developing an extensive infrastructure to make driving its cars more convenient. Tesla's network of Supercharger charging stations allows drivers to recharge their vehicles quickly (particularly compared to other electric cars). Those stations can already be found along the most-traveled routes in North America, Europe, and the Asia Pacific region, and the company is doubling the network's size this year.

Align Technology's success is also due in large part to its infrastructure. The company acquired a leading maker of 3D digital intra-oral scanners, Cadent, in 2011. So Align now owns the iTero scanner line, though it also interfaces with rival's machines.

The company has built out an impressive capability to quickly manufacture sets of clear aligners that are customized to each patient. The patient visits their dentist or orthodontist, who uses a 3D scanner to create a digital model of their teeth. This model is sent digitally to Align's processing center, where staff develop a treatment plan, which they transmit back to the dental professional.

The dentist or orthodontist next reviews the treatment plan. Patients can even preview their new smile. If all looks good, the treatment plan is sent electronically to Align's manufacturing facility, and within a few days, the patient has their Invisalign aligners.

Huge market potential

Tesla has thus far only scratched the surface of its market potential. The company's latest car, the Model 3, could open the electric car market up to many new buyers. Its list price is a modest $35,000, which should appeal to a wide swath of consumers (although, as my colleague Adam Levine-Weinberg recently observed, the actual price tag could be quite a bit higher).

Likewise, Align Technology's current sales should only be the tip of the iceberg. Its clear aligners currently have less than 10% of the total addressable market. That's partly because Invisalign can't repair certain more-severe types of malocclusion (misalignment of teeth). However, Align is actively working to address this, and plans to introduce new versions of Invisalign over the next couple of years or so that will be able to treat many of these severe cases. 

The company also has a significant opportunity to expand internationally, thanks to the growth of middle-class populations growing in many developing nations. In the second quarter of 2017, international sales grew by 37.4% -- even faster than U.S. sales did. 

Explosive stock

Tesla has been one of the biggest stock winners of the past decade. But so has Align Technology, without drawing nearly as much attention from the investment community.

TSLA data by YCharts

I wouldn't argue with anyone who predicted that Tesla will keep up its great momentum. However, there's a decent case to be made that Align is actually the better stock pick for the future.

For one thing, Align Technology can claim something that Tesla can't (and probably won't be able to do for a while): profitability. There's also the fact that correcting dental problems is more of a must-have than buying an electric car. Align could probably weather an economic downturn better than Tesla could.

Perhaps more importantly, though, Tesla's success seems to have awakened  the auto industry. Volvo, for example, plans to make nothing but electric cars beginning in 2019. Tesla could face much more intense competition in the coming years from many of the big auto companies. 

Align also has competition. However, I think that the company's head start in establishing a market for Invisalign, its good relations with a growing number of dental providers, and its great infrastructure for customized manufacturing give it a clear (no pun intended) and solid advantage that will be hard to overcome.

Like many investors, I admire what Elon Musk has done at Tesla. For investors looking for "Tesla-esque" stocks in healthcare, Align Technology appears to be a really good choice. 

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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Align Technology and Tesla. The Motley Fool has a disclosure policy.