Thar's gold in them there teeth!

That's what investors in Dentsply International (NASDAQ:XRAY) could be saying after the company reported record second-quarter earnings earlier this week. The dental supply company also said it expected to meet revenue goals and exceed earnings targets for the year. Earnings have grown at an average annual rate of 16% since 1999. Not bad for a company that makes false teeth.

It's actually an industry that has bright prospects. With an aging population and the limited longevity of natural teeth, the need for aesthetic and prosthetic dental services and products is increasing. Dental practice philosophy has experienced a shift from curing pain to one of prevention and cosmetic dentistry. As dental plan insurance coverage grows, the ability of people to have these services performed will also grow, as will the need for companies such as Dentsply.

The 100-year-old company is the top dog in dental prosthetics, crown and bridge materials, and endodontic instruments and materials used in root canals (ouch!). Sales at Dentsply have been growing 16% a year over the past five years, while free cash flow has been on the rise at an average annual rate of 23% over the same time frame. The company witnessed double-digit growth in Europe last quarter, and it views the Asian market, particularly Japan (the third-largest dental market in the world), as a prime region for expansion.

With technological innovation continuing to be an important driver for future growth, the company expects to grow its research and development investments by 20% this year. On average, it introduces 25 new products each year, which is the highest in the industry.

Yet the market appears to be overlooking Dentsply. It has a price-to-earnings ratio of 17, half that of competitor Patterson Dental (NASDAQ:PDCO), a few points below Henry Schein (NASDAQ:HSIC), and below that of even the S&P 500 as a whole. It also sports some of the highest margins in the industry. With more than $344 million in the bank, Dentsply could use the cash to make acquisitions as others have done in this fragmented but consolidating industry.

Earlier this year, Dentsply completed the sale of its lagging heavy-equipment unit, Gendex, to a subsidiary of Danaher (NYSE:DHR). Now the company's product line consists almost solely of consumables, which is a prescription for repeat business and growing sales. It's a process that many companies have used to good effect and good profits. Dentsply looks as though it will continue to be a steady, consistent performer, one that can take advantage of demographic trends and international opportunities to boost shareholder value.

It's enough to make investors smile.

Fool contributor Rich Duprey always remembers his dentist at Christmas. He does not own any of the stocks mentioned in this article.