Medical device company DexCom, Inc. (DXCM) focuses on designing, developing, and commercializing continuous glucose monitoring (CGM) systems worldwide. The company’s CGM offerings include DexCom G6, an integrated CGM system for diabetes management; Dexcom G7, a next-generation G7 CGM system; and Dexcom Share, a remote monitoring system, making it one of the most significant players in the diabetes care space.

DXCM’s expansionary policies and the commercialization of its CGM systems and other relevant product launches helped deliver 45.2% returns over the past year. In addition, the company posted a robust third-quarter earnings report, beating the consensus estimates both on the top line and the bottom line. DXCM’s revenue growth of 30% year-over-year was primarily driven by volume growth in conjunction with new customer additions with increasing awareness of real-time CGM. DXCM also raised its guidance for the fiscal year 2021 revenue.

However, the stock has slumped 4.6% over the past month and 6.1% over the past five days to close its last trading session at $536.95. Chairman, CEO & President of DXCM, Kevin R Sayer selling 3,000 shares of the company on December 15, 2021, at an average price of $535.97 a share, totaling a sale of $1.60 million, while EVP Operations of DXCM, Barry J. Regan selling 1,214 shares of DXCM on December 13 at an average price of $563.93 a share, added to investors’ pessimism. Moreover, the company faces stiff competition from its industry peers. The unique product launches and advancements from other dominant players could prove significant headwinds in its growth trajectory.

Here’s what could shape DXCM’s performance in the near term:

Stretched Valuation

In terms of forward P/E, DXCM is currently trading at 215.45x, 589.1% higher than the industry average of 31.27x. Also, its forward EV/EBITDA ratio of 105.17 is 550.2% higher than the industry average of 16.18. Also, DXCM’s forward Price/Book of 23.92x is 519.8% higher than the industry average of 3.86x.

Mixed Analysts Estimates

Analysts expect DXCM’s revenues to increase 22.6% year-over-year in the fiscal fourth quarter ended December 2021. In addition, its revenue is expected to grow 27.1% in the fiscal 2021 and 22.3% in the following year. However, DXCM’s EPS is expected to decline 7.7% in the last completed quarter and 10% in fiscal 2021. But Street expects DXCM’s EPS to rise 29.7% year-over-year to $3.62 in fiscal 2022. The company’s EPS is expected to grow 7.1% per annum over the next five years.

Consensus Price Target Indicates Potential Upside

Of the 13 Wall Street analysts that have rated the stock, ten rated it Buy, and three rated it Hold. The median price target of $649 indicates a potential upside of 20.9% from its last closing price. Their price targets range from a low of $576 to a high of $750.

Mixed Financials

DXCM’s total revenues increased 30% year-over-year to $650.20 million in the fiscal third quarter ended September 30, while its operating income stood at $118.30 million, up 25.7% from the same period last year. However, its non-GAAP net income declined 4.4% from the year-ago value to $89.50 million. The company’s non-GAAP EPS came in at $0.89, indicating a decrease of 5.3% year-over-year.

POWR Ratings Reflect Uncertain Prospects

DXCM has an overall rating of C, translating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Stability, consistent with its 60-month beta of 0.94.

DXCM has a C grade for Sentiment. Mixed analyst sentiment about the stock justifies this grade.

Of the 169 stocks in the  Medical - Devices & Equipment industry, DXCM is ranked #83.

Beyond what I have stated above, you can also view DXCM’s grades for Quality, Growth, Momentum, and Value here.

View the top-rated stocks in the Medical - Devices & Equipment industry here.

Bottom Line

The company has been expanding its product offerings and has gained significant investors’ attention over the past year. However, the growing market for glucose monitoring devices is becoming increasingly competitive. The stiff competition from other major industry players could make the stock volatile. Moreover, the insider trading last month could make investors anxious. Also, given its stretched valuation, it could be wise to wait for a better entry point in the stock.

How Does DexCom, Inc. (DXCM) Stack Up Against its Peers?

While DXCM has an overall POWR Rating of C, you might want to consider looking at its industry peers, OLYMPUS CORPORATION (OCPNY), Fonar Corporation (FONR), and ICU Medical, Inc. (ICUI), which have an A (Strong Buy) rating.

DXCM shares were trading at $522.81 per share on Monday afternoon, down $14.14 (-2.63%). Year-to-date, DXCM has gained 41.41%, versus a 29.40% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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