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Why Align Technology Stock Just Popped

By Rich Smith – Oct 28, 2021 at 3:01PM

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Align beat earnings in Q3 and has a shot at doing it again in Q4.

What happened

Shares of clear braces maker Align Technology (ALGN 2.38%) jumped 4.1% in 2 p.m. EDT trading Thursday after the company behind the popular Invisalign product reported better-than-expected sales and earnings for its fiscal third quarter last night.

Looking ahead to Q3, analysts had forecast Align would earn $2.60 per share on sales of $977.8 million. Instead, Align said it earned $2.87 per share on sales of more than $1 billion.  

Green stock arrow shooting up between the numbers 20 and 21.

Image source: Getty Images.

So what

Granted, that $2.87 was just a pro forma number. But Q3 revenues rose 38% year over year at Align, hitting a record $1.02 billion. And with operating profit margins inching up 160 basis points when calculated according to generally accepted accounting principles (GAAP), Align didn't look too shabby either, earning $2.28 per share -- up 29.5% year over year.  

Align CEO Joe Hogan boasted that Align saw growth across "all regions, customer channels, and products."

Now what

And Align isn't done growing. In finalizing its guidance through the end of this fiscal year, the company says it expects revenues to end up 58% to 60% better than they were in 2020 -- somewhere between $3.9 billion and $3.95 billion. Operating profit margins on those revenues should be in the neighborhood of 25% -- down a bit from Q3 levels of 25.7%. Additionally, Align says it will probably keep buying back stock in Q4, repurchasing about $100 million worth of shares.

Now, on the one hand, Align's revenue guidance does fall a bit short of what analysts have been forecasting. At last report, consensus targets called for Align to collect $3.94 billion in revenues this year, and the midpoint of management's guidance suggests it might miss that mark. On the plus side, the promise to buy back stock gives Align a better chance of concentrating net profits among fewer shares outstanding so as to more easily meet or beat Wall Street's earnings target of $10.91 per share.

Translation: After beating earnings in Q3, there's still a chance we'll see another beat in Q4.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Align Technology. The Motley Fool has a disclosure policy.

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