Notwithstanding a daily gain of 2.2%, DexCom Inc (DXCM, Financial) has experienced a 3-month loss of 10.32%. The company's Earnings Per Share (EPS) stand at 0.86, raising the question: is the stock modestly undervalued? This article aims to answer this question through a meticulous valuation analysis. Read on to discover the intrinsic value of DexCom's stock.
Company Overview
DexCom Inc (DXCM, Financial) designs and commercializes continuous glucose monitoring systems for diabetic patients, providing an alternative to traditional blood glucose meter processes. The company is also evolving its systems to integrate with insulin pumps from Insulet and Tandem. With a market cap of $41.50 billion and sales of $3.20 billion, DexCom's operating margin stands at 14.02%. The Return on Invested Capital (ROIC) is 14.14% while the Weighted average cost of capital (WACC) is 11.11%. The company's current stock price is $106.98, which we will compare with its GF Value of $141.61.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally trade. If the stock price significantly deviates from the GF Value Line, it could indicate overvaluation or undervaluation, thus influencing future returns.
DexCom's stock appears to be modestly undervalued according to GuruFocus' valuation method. This implies that the long-term return of DexCom's stock is likely to be higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. DexCom's cash-to-debt ratio of 1.08 ranks worse than 64.83% of 833 companies in the Medical Devices & Instruments industry. Nevertheless, DexCom's overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. DexCom has been profitable 4 times over the past 10 years. With a revenue of $3.20 billion and Earnings Per Share (EPS) of $0.86, its operating margin of 14.02% ranks better than 72.33% of 824 companies in the Medical Devices & Instruments industry. However, DexCom's profitability ranks at 4 out of 10, indicating poor profitability.
One of the most crucial factors in a company's valuation is growth. DexCom's average annual revenue growth is 19.4%, ranking better than 75.24% of 723 companies in the Medical Devices & Instruments industry. Its 3-year average EBITDA growth is 31.8%, which ranks better than 77% of 726 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can also evaluate its profitability. DexCom's ROIC was 14.14 over the past 12 months, while its WACC was 11.11. When the ROIC is higher than the WACC, it signifies that the company is creating value for shareholders.
Conclusion
In conclusion, DexCom's stock appears to be modestly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks better than 77% of 726 companies in the Medical Devices & Instruments industry. For more information about DexCom's stock, check out its 30-Year Financials here.
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