Align Technology Way Outperformed in the Fourth Quarter

In this segment of the Market Foolery podcast, host Chris Hill and Foolish investor-at-large Tim Hanson talk about Align Technology (ALGN 0.61%), maker of the popular InvisAlign clear dental aligners.

The results for the year were excellent across the board, but the forecast for 2018 growth was lower than it produced in 2017, and that got the company's watchers nervous. Is the market right to worry?

A full transcript follows the video.

This video was recorded on Jan. 31, 2018.

Chris Hill: Let's move on to Align Technology, which is the parent company of Invisalign. One of those situations where the underlying brand is probably better known than the parent company. Fourth-quarter profits much higher than expected, their revenue was higher than expected. The shares are down a little bit, and my assumption is that that's about management guidance.

Tim Hanson: Yeah, this is an example of, why did you have a conference call, stupid? Is it Dan Pink who has the book about timing, about conference calls in the afternoon being more negative than conference calls in the morning?

Hill: Yes.

Hanson: I think this is a great example of that. They had their conference call yesterday afternoon. They had bang-up results for the year, both growth in pricing and units and expanding into new geographies. And then, on the conference call, everybody got hung up around why they didn't forecast 2018 growth to be as aggressive as it had been in 2017. And after they got hung up on that growth -- they said a few things about why they weren't forecasting super-aggressive growth, and then all the analysts got hung up about the fact that maybe your doctor is going to like the fact that you're opening retail stores, or maybe you don't have enough capacity in Mexico to meet demand. And all of the sudden, the stock, which I think had been up sharply, is now down sharply, just because everybody started getting freaked out about how much growth they were going to produce in 2018. But the stock is pricey. It's always been pricey. It's a good business.

Hill: It's nearly tripled in the last 12 months.

Hanson: You never want to short stocks that appeal to human vanity.

Hill: [laughs] For those who may have missed it, what Tim referred to there, Dan Pink, best-selling author, we just had him as a guest at Motley Fool Money, he was here at The Motley Fool, and his latest book is about the science of timing. And one of the great things about his book -- and there are a lot of great things but one of them is, he talks about how there was a point in time where you could survey a 100 people on any given thing and you would get some sort of results, and academic papers would be written from that. Now, in the era of big data, you can throw tens of thousands of examples. And in this case, I think they analyzed something like 26,000 conference calls of public companies, and overwhelmingly, regardless of the results being put up, the ones in the afternoon were more negative.

Hanson: Yeah. More negative speech. More negative tone.

Hill: OK, so, first order of business for Align Technology, move that conference call.

Hanson: Morning conference call next time, guys! You're welcome for that advice!

Hill: And I was telling our friend and colleague down at Motley Fool Asset Management, Charly Travers, and one of the things he talked about with respect to the guidance was, management has been very consistent year after year. This is one of those examples where, we say this from time to time, listen to what management is saying and hold the management accountable for their own targets, as opposed to Wall Street analysts. It sounds like they've been very consistent year after year in terms of their growth projections. So, the fact that they put up 40% growth last year, now you have a bunch of afternoon, their bodies are crashing, they're cranky analysts saying, "Why aren't you guiding to 40%?"

Hanson: Yeah, that seems to be what happened.