Is the sky falling DexCom(NASDAQ: DXCM)? Shares of the medical device specialist fell sharply following its second quarter report. Unfortunately, the sugar-focused company failed to impress investors yet again with its latest quarterly update.
At about $69 per share, DexCom stock isn't that far off its 52-week low of $62.34 and is miles away from its 52-week high of $142. However, there are still good reasons to invest in the company.
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Let's first review what DexCom does. The company is a market leader in continuous glucose monitoring (CGM) systems, which allow diabetes patients to track their glucose levels accurately day and night. It recently introduced the G7, one of the most advanced CGM systems.
However, the release of the G7 in the US came with some problems related to the eligibility of the discount, with more patients taking advantage of the discounts than expected.
That was one of the problems in the second quarter, exacerbated by the company's slow growth in international markets. These problems carried over into the third quarter, when revenue for that period increased just 2% year-over-year to $994.2 million. Investors would expect a company with a forward price-to-earnings (P/E) ratio of about 40 to grow its earnings at the best rate.
DXCM PE Ratio Chart (Forward).
The P/E ratio for the healthcare industry is 18.2. And the company's adjusted EPS of $0.45 was less than the $0.50 reported in the year-ago period. There wasn't much to celebrate in the quarterly update, but let's consider why the company's prospects remain attractive.
What do the headwinds DexCom has experienced lately mean for its investment thesis? As for the issue of discount eligibility, it doesn't say much. That's a temporary problem that won't matter in a few years.
Its slow growth in global markets is very worrying, but even so, it is important to look at the bigger picture. The company has historically expanded its market reach by entering new territories. There is still plenty of room to do so. As its biggest competitor in the CGM market, Abbott Laboratorieshe pointed out, only 1% of the world's 1 billion adults with diabetes have access to CGM technology.
Not all are eligible, but those above 1%; this underserved market could provide DexCom with significant growth potential over the next decade. It is still looking to expand worldwide.
Chief Financial Officer Jereme Sylvain said: “There is still a long way to go for DexCom CGM globally. We continue to invest in infrastructure to expand our geographic presence, provide compelling evidence to expand market access in new key market segments, and leverage our product portfolio to meet unique needs.” of various clients and health systems.”
The company recently gained expanded coverage in France and released a CGM option for sale in the US, called Stelo, for people with diabetes who don't use insulin.
And DexCom is creating a network effect as its CGM systems integrate with dozens of other devices and third-party apps — from insulin pens and pumps to the Apple Watch, among many others — to help make the lives of diabetes patients easier.
The more patients become part of its ecosystem, the more attractive it is for other device developers to choose to partner with DexCom, attracting more customers. That is an important competitive edge that should allow it to remain the leader in its market for some time.
DXCM Absolute Return Rate Chart
The stock's valuation may cause it to fluctuate slightly in the near term. But that is nothing new for this company. Shares of DexCom have generally been somewhat volatile, but over time, they have moved in the right direction. I expect the same to continue. So, despite its problems, now is a good time to invest in DexCom.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends DexCom. The Motley Fool has a policy of disclosure.
1 Stock to Buy Near the 52-Week Low and Hold for 10 Years was originally published by The Motley Fool.
