The healthcare space is considered as a recession-proof industry as people rarely delay medical expenses. Most governments are also looking to prioritize healthcare spending making this sector even more relevant.
Further, the demand for diabetes products continues to rise as cases are spiraling upwards all over the world. According to a report from the World Health Organization, around 422 million worldwide have diabetes and this disease accounts for 1.6 million deaths each year.
Keeping these factors in mind, today I’m going to analyze two diabetes stocks, Senseonics (SENS) and Tandem Diabetes Care (TNDM), to try and determine which stock is a better buy.
Senseonics
Senseonics is a medical technology company that develops and commercializes CGM (continuous glucose monitoring) systems for people with diabetes in the U.S., Europe, Africa and the Middle East. Its products include Eversense and Eversense XL that are implantable CGM systems. These products can measure glucose levels in people with diabetes and serve healthcare providers as well as patients through a network of medical distributors and fulfillment partners.
Senseonics stock is trading at $3.62 per share and was up 18% today. Since the start of June 2020, the stock has gained an impressive 69% on the back of encouraging clinical trial results from the study of its CGM system. The study assessed the company’s Eversense CGM system in patients for a six-month period where the hypoglycemic-alert detection rate was 93% for its primary sensor and 94% for the secondary sensor.
Millions of people in Senseonics’ key markets have type 1 diabetes that requires constant monitoring of glucose levels. The company’s 180-day sensor is now awaiting approval in the U.S. and will be a key revenue driver for the firm.
While Senseonics has forecast sales of $15 million in 2021, it expects top-line to expand between $150 million and $200 million by 2025. The stock is valued at a market cap of $1.56 billion which suggests its price to sales multiple of 104x is sky-high. But you need to look at its exponential sales growth going forward before you make an investment decision.
Tandem Diabetes Care
Another medical device company in the diabetes space is Tandem. It develops and commercializes products for patients with insulin-dependent diabetes in the U.S. Tandem Diabetes Care also offers a data management application that provides a visual way to display diabetes therapy management data, CGM and supported blood glucose meters for users.
In the fourth quarter of 2020, the company reported sales of $168 million, which was an increase of 55% year over year. Tandem shipped 32,685 pumps in Q4 which was up 67% compared to the prior-year period. In 2020, its sales were up 38% at almost $500 million.
In Q1, top-line growth stood at a stellar 44% as the company’s sales grew to $141 million. Tandem shipped 25,353 pumps in Q1, an increase of 46% year over year. Its operating loss accounted for 2% of total sales, much narrower than the prior-year figure of 14%.
Tandem is valued at a market cap of $5.6 billion and analysts expect 2021 sales to rise by 28% to $637 million. This will also allow it to improve profit margins from a loss of $0.56 per share in 2020 to earnings of $0.15 per share in 2021. While sales might increase by 18% in 2022, its earnings are forecast to rise by 320%.
The verdict
We can see that Senseonics and Tandem Diabetes Care remain stellar picks for growth investors and are poised to beat the broader markets in 2021 and beyond. These companies should continue to experience strong product demand across economic cycles allowing them to drive top-line growth and improve profit margins going forward.
While Senseonics is significantly more expensive, compared to Tandem, the former is also growing at an exponential rate. Senseonics recent trial results are more than encouraging, which makes me believe it is the better stock right now.
SENS shares rose $0.31 (+8.56%) in after-hours trading Thursday. Year-to-date, SENS has gained 315.23%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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