DexCom, Inc. (DXCM) is a medical device company involved in the development and commercialization of continuous glucose monitoring (CGM) systems in the U.S. and internationally. It markets its systems to people with diabetes, as well as to healthcare providers, endocrinologists, physicians, and diabetes educators.

Despite being the first mover into the market for continuous glucose monitoring, the company has been facing stiff competition from  peers that have been making significant headway in the CGM market. In fact, Abbott Laboratories (ABT) recently won approval for  its Freestyle Libre 3 CGM in the European market, which could pose a threat to DXCM’s G6 CGM. While DXCM’s potential market remains vast, the stock could be volatile until there is more clarity on the development timing of its premium G7 model.

Even though strategic investments for the development and commercialization of its CGM devices have helped the stock gain 57.1% over the past year, growing competition and uncertainty surrounding the launch of its new product have earned DXCM a “Neutral” rating in our  proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates DXCM:

Trade Grade: C

DXCM is currently trading higher than its 50-day moving average of $348.83, but lower than its 200-day moving average of $379.90, which does not indicate a promising trend. Moreover, DXCM has lost 6.5% over the past three months, indicating  short-term bearishness.

DXCM’s revenue has increased 26.4% year-over-year to $500.90 million in the third quarter ended September 30, 2020. Its gross profit rose 37.9% from the year-ago value to $340.40 million, while its net income grew 57.6% year-over-year to $72.20 million. The company’s adjusted EBITDA increased 58.8% from the prior-year quarter to $146.90 million over this period.

In October, the company announced the appointment of Kyle Malady to its Board of Directors. With extensive experience gained from a 30-year-plus career in mobile communications technology and strategic innovation, his leadership could prove to be a complementary fit with DXCM’s efforts to boost its business and data infrastructure.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, , DXCM’s positioning is unimpressive. The stock is currently trading 18.9% below its 52-week high of $456.23, which it hit on July 7 last year.

The company’s revenue has grown at a CAGR of 39.6% over the past three years, while its EPS declined 227.6% year-over-year during  this period. The decline can be attributed to the fact that DXCM’s premium CGM model is still in the clinical trial phase, while its competitors are already announcing the launch of superior devices.

Peer Grade: D

DXCM is currently ranked #105 of 186 stocks in the Medical – Devices & Equipment industry. Other popular stocks in this industry are MKS Instruments, Inc. (MKSI), Guardant Health, Inc. (GH) and Stryker Corporation (SYK).

While MKSI and GH beat DXCM gaining 57.3% and 89%, respectively, over the past year,  SYK returned 10.5% over this period.

Industry Rank: B

The Medical – Devices & Equipment industry is ranked #33 of 123 StockNews.com industries. The companies in this industry manufacture medical equipment and supplies, including glucose monitoring devices, surgical and medical instruments, dental equipment, and surgical appliances.

The COVID-19 pandemic has revealed the importance of healthcare products and services. With this, medical  device manufacturers should continue to witness significant growth because  they are playing a pivotal role in meeting increasing demand for personal protective equipment (PPE), ventilators, respirators, glucometers, and masks.

Overall POWR Rating: C (Neutral)

Despite reporting strong financials, DXCM is rated a “Neutral” due to growing competition and other challenges it is currently facing, as determined by the four components of our overall POWR Rating.

Bottom Line

Despite witnessing a strong period of growth with rising incidences of diabetes worldwide, , the success of DXCM’s competitors could make things difficult for the stock. While the CGM market is growing rapidly, DXCM’s price performance may remain volatile in the near term.

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DXCM shares were trading at $377.69 per share on Monday morning, up $7.57 (+2.05%). Year-to-date, DXCM has gained 2.16%, versus a 2.85% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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