Should you add Straumann Holding to your portfolio?

Dental tooth and golden coin on balancing scale

(Image credit: Getty Images)

published 21 January 2025

The global dental market is expected roughly to double in size over the next decade. Rising demand for aesthetic treatments, such as implants, veneers and braces, is set to drive the bulk of the growth, particularly in major developed markets such as the US and across Europe. Demand for aesthetic treatments surged immediately after the pandemic as consumers, flush with cash, splashed out on improving their appearance. After several years of growth, demand flattened last year. But according to proprietary analysis by the team at investment bank Berenberg, that’s about to change, particularly in the largest market, the US.

Berenberg’s analysis found that 60% of dentists in the US expect spending on procedures to recover in 2025, driven by enhanced consumer sentiment following Donald Trump’s election. Tax cuts and lower interest rates could also help fuel demand, all of which could be good news for Straumann Holding (Zurich: STMN).

Straumann is a global leader in the tooth replacement and orthodontic procedures market. It develops, produces, and markets dental implants, dental prosthetics, oral orthodontics, and equipment and biomaterials for the dental industry worldwide. Over the past two decades, this market has grown rapidly thanks to the increasing wealth of the middle class and the prevalence of social media – a strong link has been identified between the time spent on social media and the desire for cosmetic procedures. These trends have been substantial tailwinds for the company. Over the past decade, the stock has produced a total return of around 17% per annum.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

When the global economy reopened after the pandemic, Straumann became one of the key beneficiaries as consumers rushed to spend their lockdown savings. Sales surged into 2021, and so did the company’s stock, rising around 100% that year. However, demand slowed after the initial bounce, and revenue followed suit. Investors responded by dumping the stock. The shares lost around half of their value in the following year. And since the end of 2022, the stock has trended sideways as growth has remained elusive.

Straumann has multiple levers to pull to hit this target. Its analysis suggests the total addressable market (TAM) for key products could be in the region of CHF19 billion, with the most opportunity for growth in the market for clear aligners, the go-to product for teeth straightening. In a market that used to be dominated by old-fashioned braces, clear aligners look better and are more effective. Straumann estimates the TAM here could be worth as much as CHF6 billion per annum – growing at 15%-20% per annum – but its share of the market today is just 3%. In comparison, the company has a 32% share of the global market for dental implants, the fixtures used to support prosthetics.

Straumann’s growth over the next five years is expected to come from premium markets. It is focusing on expanding its presence in high-end orthodontics in key markets, primarily the US. Around 50% of the company’s implants are sold as premium products (and 60% of products across the group), so it already has an established foothold and reputation. Its good reputation allows the company to target premium margins. Its Ebit margin has averaged 26% over the past five years, and management has a margin target range of 25%-30%. New premium products are planned every two to three years and Straumann has historically introduced each new product at a 10%- 15% premium, according to Berenberg’s analysis.

The company has plenty of firepower to maintain its research edge and invest in growth. There’s net cash on the balance sheet and headroom for CHF1 billion-2 billion in leverage for deals, although management has signalled it won’t rush into deals just for the sake of growth. Research and development (benchmarked at around 5% of sales) and the expansion of manufacturing capacity (into the growing Brazilian and Chinese markets) are set to take precedence. Thomas Straumann, the grandson of the company’s founder, is the largest shareholder with a 15.7% stake. He has been a board member since 1990 and is watching over the company’s progress and operational decisions.

Concerns about the company’s growth have weighed on Straumann’s shares over the past six months, and this could present a good opportunity to buy. The stock is trading at an enterprise value to earnings before interest, tax, depreciation, and amortisation (EV/Ebitda) ratio of 22.7, based on Berenberg’s forward projections for 2024, falling to 17.5 on 2026 numbers, both substantially below the ten-year average of 28. Stripping out net cash, expected to hit around CHF500 million by 2026, and the multiple appears even more attractive.

Rupert is the former deputy digital editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.

Rupert has written for many UK and international publications including the Motley Fool, Gurufocus and ValueWalk, aimed at a range of readers; from the first timers to experienced high-net-worth individuals. Rupert has also founded and managed several businesses, including the New York-based hedge fund newsletter, Hidden Value Stocks. He has written over 20 ebooks and appeared as an expert commentator on the BBC World Service.