DexCom, Inc. (NASDAQ: DXCM)
DexCom makes continuous glucose monitoring (CGM) devices that help people with diabetes stay on top of their glucose levels. As of the latest public report, the company says 1.25 million people are users of one of its CGMs. That makes it one of the bigger players in the business. The diabetes company DexCom has been an incredible investment over the past decade, with 2,500% returns during that time, dwarfing the S&P 500 and its 177% gains. With its recent fall in price after a long run of the stock price increasing (over the last 3 years), DexCom has seen an increase in mentions of 140% over the last day, encouraging investors to wonder whether they should take a position in the company now or not. Currently shares of DexCom trade at $83.75 per share.
There are numerous reasons that DexCom has generated so much positive hype recently, here are some of them.
DexCom's top line is on track to rise by a healthy 18.2% this year, and another 20.2% in 2023.
What's more, this CGM titan posted a gross profit of a whopping $449.5 million in the second quarter of 2022.
Currently, the company is in the midst of rolling out its newest CGM, the G7. It promises to have more accuracy than the G6 version, and it's also 60% smaller. The launch of the G7 could help with DexCom's growth rate, which has been declining in recent years.
DexCom Inc. also generates terrific growth margins of over 65, that have resulted in profitability for the company too.
This year, DexCom projects that its sales will be around $2.9 billion, growing between 17% and 19% from the previous year.
DexCom has been expanding into other parts of the world, but international revenue accounts for just 27% of its top line today. The positive, however, is that the international segment is driving more growth (41%) this year than the U.S. market (14%).
Although this isn’t very favorable otherwise, DexCom estimates the market for this CGM technology is between 7 million and 8 million people worldwide, with nearly half of that figure being readily accessible to diabetics within the United States and the market is currently growing very fast. Due to a combination of poor diets and lack of exercise, the International Diabetes Federation estimates the percentage of the world's population diagnosed with diabetes will swell from 2019's 9.3% to 10.9% by 2045.
Despite there being quite a few reasons that would make it a good idea to take a position in DexCom right now, it is also important to consider the downsides of this opportunity. Here is one of them.
DexCom has spent nearly as much on the cost of sales as it has on selling, general, and administrative costs over the past 12 months ($906 million versus $904 million).
Research and development costs of $623 million and other expenses on top of that have resulted in the company netting a lean profit of just $168 million (on revenue of $2.7 billion) during that time frame, for a modest profit margin of 6.3%.
Health stocks are defensive plays, no matter how poorly the U.S. economy and stock market perform, people don't stop requiring prescription drugs, medical devices, and healthcare services. DexCom may be pricey on a fundamental basis, but its premium appears well warranted given its competitive advantages and exceptionally long growth runway.
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