Should one Purchase, Sell, or Hang onto DXCM shares at a value of $70?
DexCom's (NASDAQ: DXCM) share price has taken a plunge of nearly 20% this month, courtesy of FDA warning letters about manufacturing issues at its San Diego and Mesa facilities. The health regulatory body expressed concerns over processes and quality control, yet Dexcom remains unfazed, maintaining its 2025 financial outlook.
Despite the significant drop in price, DXCM stock currently stands as an intriguing yet high-risk investment opportunity, given its attractive yet volatile nature. Our analysis leads us to believe there's little reason for concern when it comes to DXCM stock, but buy it at around $71, and you'd better be ready for some gut-wrenching rollercoaster rides.
We've crunched the numbers on DexCom, and here's what we've gathered:
- Compared to the broader market, DexCom stock appears relatively expensive. With a price-to-sales (P/S) ratio of 8.6 versus 3.2 for the S&P 500, a price-to-operating income (P/EBIT) ratio of 57.5 compared to 24.3 for the S&P 500, and a price-to-earnings (P/E) ratio of 34.9 against 24.3 for the benchmark, DXCM stock isn't exactly a bargain.
- DexCom's revenues have seen significant growth over the past few years. Its average annual growth of 18.2% over the last three years far surpasses the S&P 500's 6.3% increase. Its revenues grew by 11.3% from $3.6 billion to $4.0 billion in the last 12 months, and its quarterly revenues increased by 7.6% to $1.1 billion in the most recent quarter from a year ago.
- DexCom's profit margins are typically higher than those of most companies in Trefis' coverage universe. Over the last four quarters, the company's operating income of $600 million translates to a moderate operating margin of 14.9%, compared to the 13.0% for the S&P 500. Its operating cash flow (OCF) over this period was $990 million, equating to a high OCF-to-Sales Ratio of 24.5%, compared to 15.7% for the S&P 500.
- DexCom's balance sheet looks extremely strong. Its debt figure stood at $2.6 billion at the end of the most recent quarter, while its market capitalization is $28 billion (as of 3/18/2025). This implies a strong Debt-to-Equity Ratio of 7.5%, compared to the 19.0% for the S&P 500. Cash (including cash equivalents) amounts to $2.6 billion of the $6.5 billion in Total Assets for DexCom, yielding a very strong Cash-to-Assets Ratio of 39.8%, compared to 14.8% for the S&P 500.
- In times of market downturns, DXCM stock has exhibited impact that was slightly better than the benchmark S&P 500 index. Concerned about the potential impact of a market crash on DXCM stock? Our analysis of key market crashes reveals how DXCM fared in comparison.
Based on our findings, DexCom's performance across various aspects seems to be extremely strong. However, its high valuation makes it an unpredictable investment option — a rollercoaster ride for those seeking quick gains. For those seeking lower volatility, a High-Quality portfolio from Trefis presents an alternative — having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
- Despite the FDA's concerns about DexCom's manufacturing issues, the company's 2025 financial outlook remains unaffected, indicating a certain level of stability in its operations.
- While DexCom stock has seen a significant drop in price this month, its high-quality portfolio from Trefis offers an alternative for investors seeking lower volatility, with returns exceeding 91% since its inception in contrast to DXCM's unpredictable nature.
- The DexCom's balance sheet from 3/18/2025 exhibits a strong position, with a Debt-to-Equity Ratio of 7.5% compared to the S&P 500's 19.0%, and a Cash-to-Assets Ratio of 39.8% compared to 14.8% for the S&P 500, demonstrating DexCom's financial health. However, its high valuation relative to the S&P 500 may continue to make it a volatile investment option through 2025. (103c1d3e0c12bf06ee3460801fe285a3)
