What happened
Shares of Align Technology (ALGN -1.04%) were 12.1% higher as of 11:16 a.m. EDT on Thursday. The nice gain came after the orthodontic device maker announced better-than-expected third-quarter results on Wednesday evening.
Align reported Q3 revenue of $607.3 million, a record for the company and well above the consensus Wall Street estimate of $594 million. It also announced earnings per share of $1.28, handily beating the average analysts' estimate of $1.14.
Image source: Getty Images.
So what
Investors nearly always react positively when a company easily tops Wall Street estimates as Align did in the third quarter. But the company's Q3 results were even more encouraging in light of its cautious outlook provided just three months ago.
It expected headwinds in the Asia Pacific region because of "uncertainty in China." But the company didn't run into as many problems as it anticipated. Align reported all-time high revenue in the Asia Pacific region as well as in its Latin America region. CEO Joe Hogan said on the company's Q3 conference call that the teen market in China was especially strong.
While Align has been heavily scrutinized because of worries about slowing growth rates, the company's third-quarter performance showed that it's still generating impressive top-line growth. It reported that sales increased 20.2% year over year, and it expects revenue growth anywhere from 20% to 22% for the fourth quarter.
Now what
China remains the key area to watch. Hogan acknowledged that the company still has "a headwind there," noting that China has reported "the slowest growth seen in 30 years." But he also said the company feels good about the momentum there.
Align is also spending heavily on marketing and promotion. As is the case for individuals investing in stocks, businesses must invest in their future not knowing for sure what their return will be. Although increasing marketing costs are weighing on earnings, they could pay off over the long run as consumers become more aware of the company's clear orthodontic aligners.
