Using the Earnings Power Value framework with a WACC of 7.8% and normalized earnings of $445.0M, Align Technology, Inc. has a fair value of $91.77 per share. The EPV range is $79.13 – $110.43 based on WACC sensitivity (6.3% – 9.3%).
| Low | Selected | High | |
|---|---|---|---|
| Normalized Earnings | 445 | 445 | 445 |
| (/) WACC | 9.3% | 7.8% | 6.3% |
| Enterprise Value | 4,779 | 5,697 | 7,051 |
| (-) Net debt | -965 | -965 | -965 |
| Equity Value | 5,744 | 6,662 | 8,016 |
| (/) Outstanding shares | 73 | 73 | 73 |
| Fair Price | $79.13 | $91.77 | $110.43 |
Earnings Power Value (EPV) estimates what a company is worth based on its current normalized earnings, assuming zero growth. It values the business as a perpetuity: Normalized Earnings / WACC. This gives a conservative floor value — the company's worth if it never grows but maintains its current profitability.
The model normalizes earnings by: (1) using sustainable gross margins (5-year average) applied to current revenue, (2) deducting maintenance-level operating expenses (average R&D + SG&A as % of revenue), (3) applying the average effective tax rate, and (4) subtracting the average excess of CapEx over D&A (net reinvestment needed to maintain current capacity).
EPV is most useful as a comparison anchor: if the market price is below EPV, the stock may be undervalued even without any growth. If market price exceeds EPV, the premium reflects growth expectations — which may or may not materialize.