Shares of Align Technology (NASDAQ:ALGN) were crashing by 25.7% as of 11:10 a.m. EDT on Thursday. The plunge came after the orthodontic-device maker announced its second-quarter results following the market close on Wednesday.
It's not that Align's Q2 results were bad; the company reported solid revenue and earnings growth. However, it provided disappointing third-quarter earnings guidance because of concerns about uncertainty in China's consumer market.
When a stock that's valued at a premium hits any bump in the road, it usually tumbles. That's what's happening with Align. Its shares trade at a lofty level because of investors' high growth expectations for the company's Invisalign clear aligners.
CEO Joe Hogan noted in the Q2 conference call that his company has seen "softness in China related to a tougher consumer environment." He added that there has been "a little more reticence on consumers to spend."
But this appears to be only a temporary issue. Align remains confident that it will be able to grow significantly in the Chinese market. Hogan said that the company isn't seeing market saturation at all. And while it faces competition in China, there hasn't been any dramatic shift in its competitive position against key rivals.
It's important to remember that Align continues to anticipate long-term revenue growth between 20% and 30% per year. The current concerns about China haven't changed those projections. It continues to invest in expanding throughout the Asia Pacific region, especially in China.
There's a possibility, too, that the caution with the Q3 outlook could prove to be overly pessimistic. The third quarter is typically a strong season for clear aligners in China, particularly with the teen market.
The bottom line is that investors will have to wait and see what happens. But the fundamentals don't appear to have changed. Today's decline could present a buying opportunity for investors with a long-term perspective.