DexCom Inc (DXCM, Financial), a designer and commercializer of continuous glucose monitoring systems for diabetic patients, has seen a daily gain of 3.34%, despite a 3-month loss of -5.55%. With an Earnings Per Share (EPS) (EPS) of 0.86, the question arises: Is DexCom's stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of DexCom, offering insights into its financial strength, profitability, growth, and intrinsic value.
A Brief Overview of DexCom Inc (DXCM, Financial)
DexCom, a leader in the Medical Devices & Instruments industry, is known for its innovative continuous glucose monitoring systems. These systems serve as an alternative to traditional blood glucose meter processes, and DexCom is continually evolving its offerings to provide integration with insulin pumps from Insulet and Tandem.
At a stock price of $115.42, DexCom holds a market cap of $44.80 billion. Its GF Value, an estimation of fair value, stands at $141.28, suggesting that the stock may be modestly undervalued. This valuation is based on DexCom's historical trading multiples, past business performance, and future growth estimates.
Understanding DexCom's GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given DexCom's current price of $115.42 per share and a market cap of $44.80 billion, the stock is believed to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Assessing DexCom's Financial Strength
Investing in companies with poor financial strength can result in a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. DexCom's cash-to-debt ratio is 1.08, which ranks worse than 64.35% of companies in the Medical Devices & Instruments industry. However, its overall financial strength is 7 out of 10, indicating fair financial health.
Evaluating DexCom's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. DexCom has been profitable for 4 of the past 10 years, with a revenue of $3.20 billion and an Earnings Per Share (EPS) of $0.86 over the past twelve months. Its operating margin is 14.02%, which ranks better than 73% of companies in the Medical Devices & Instruments industry. However, its overall profitability is ranked 4 out of 10, indicating poor profitability.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. DexCom's average annual revenue growth is 19.4%, which ranks better than 75.28% of companies in the Medical Devices & Instruments industry. Its 3-year average EBITDA growth is 31.8%, which ranks better than 76.97% of companies in the industry.
ROIC vs WACC: A Measure of DexCom's Profitability
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, DexCom's ROIC was 14.14, while its WACC was 10.97.
Conclusion
In summary, DexCom (DXCM, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, but its profitability is poor. However, its growth ranks better than 76.97% of companies in the Medical Devices & Instruments industry. For more detailed financial information about DexCom, you can check out its 30-Year Financials here.
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