Align Technologies (ALGN 5.14%) was pummeled earlier this year as the pandemic made headlines. The need for straight teeth seemed inconsequential, taking a back seat to economic uncertainty and the changes in behavior related to the pandemic. Then, a funny thing happened that helped turn Align's fortunes around.
In this episode of Fool Live that aired on Oct. 22, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena discuss the unexpected catalyst that pushed Align higher.
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Jason Hall: Let's jump over to some earnings talk, and we have to talk about Align Technologies. Danny, I mentioned the company, Align Technologies. The ticker's ALGN. It's a company that makes orthodontics. I can say from personal experience, they're vastly superior to braces if they work for you. Align just crushed it. Shares closed up 33% today after reporting third-quarter sales. Danny Vena, tell us what happened, why it matters, and what happens next.
Danny Vena: Well, just a slight correction here. It was actually up almost 35%. What's a few percentage points between friends? Align had been hit hard early on during COVID, with people absolutely having to stay away from confined spaces with other people. Really, the investing public expected to see more of that, and what happened this quarter was very different. For the third quarter, their total revenues were up 21%. That was a record $734 million. Their net income per share diluted was $1.76, and their adjusted net income was $2.25. To put that into context, the big deal was the fact that it was so far more than what analysts had expected. They absolutely crushed it. Wall Street was expecting revenue of $514 million; they hit $734 million. They were expecting $0.54 per share adjusted, and Align delivered $2.25 a share, so more than four times the earnings that Wall Street was expecting.
There were a couple of things that played into that. You know that the company has been working to get some social influencers on social media to talk the company up. That obviously has played a small part in it.
As some of the COVID restrictions lifted, people were able to actually go to the dentist. One of the things that I found really intriguing was the fact that the CEO of Align Technologies on an interview said that there was a "Zoom effect" that happened. I'm going to quote him here. He was on Yahoo! Finance's First Trade this morning. He said, "We're hearing from doctors and patients. They are staring at themselves in Zoom meetings all day and they are starting to notice imperfections, and there's more disposable income to deal with those issues." They absolutely crushed expectations, they did far better than they thought there were going to do, their social media campaign is kicking in, and people are looking at their crooked teeth on Zoom all day long, and want to get that fixed. That just gave Align the boost that it needed to crush earnings.
Hall: Disposable income and staring at your own face all day long combined, not a bad day for Align. One other little thing I want to mention before we move on to our next topic here is, I think there probably was a little bit of a short squeeze effect here today. Going back to the worst period, late March through early April, Align Technology share short increase was over 6% at one point, then it gradually came down and came down. But it was still about 4% last count. Then I have a look at the latest options. But there's a good chance that there was some short options action going on here, too, that played a big role in the stock shooting up so much on a single day. Definitely a lot to like. Great company, great prospects going forward. Thanks for that, Danny.
Vena: No problem.