Despite a daily gain of 4.65% and an Earnings Per Share (EPS) of 0.86, DexCom Inc (DXCM, Financial) has seen a 3-month loss of -19.52%. This raises the question: is DexCom's stock modestly undervalued? Our in-depth analysis aims to provide a clear answer. Let's delve into the company's valuation and performance.
A Snapshot of DexCom
DexCom Inc specializes in designing and commercializing continuous glucose monitoring systems for diabetic patients. These systems serve as alternatives to traditional blood glucose meter processes. The company is also making strides in integrating its systems with insulin pumps from Insulet and Tandem. With a current stock price of $105, DexCom has a market cap of $40.70 billion. However, our GF Value estimates the company's fair value at $142.66. This discrepancy suggests that the stock may be modestly undervalued.
Understanding DexCom's GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, 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. Our GF Value calculation suggests that DexCom (DXCM, Financial) is modestly undervalued. As such, the long-term return of its stock is likely to be higher than its business growth.
DexCom's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to review a company's financial strength before deciding to buy shares. DexCom has a cash-to-debt ratio of 1.08, which ranks worse than 64.19% of 835 companies in the Medical Devices & Instruments industry. Based on this, GuruFocus ranks DexCom's financial strength as 7 out of 10, suggesting fair balance sheet.
DexCom's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. DexCom has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $3.20 billion and Earnings Per Share (EPS) of $0.86. Its operating margin is 14.02%, which ranks better than 73.24% of 826 companies in the Medical Devices & Instruments industry. Overall, the profitability of DexCom is ranked 4 out of 10, which indicates poor profitability.
Growth is a crucial factor in the valuation of a company. DexCom's 3-year average revenue growth rate is better than 75.41% of 724 companies in the Medical Devices & Instruments industry. DexCom's 3-year average EBITDA growth rate is 31.8%, which ranks better than 77.37% of 729 companies in the Medical Devices & Instruments industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, DexCom's ROIC was 14.14, while its WACC came in at 11.63.
Conclusion
In summary, DexCom (DXCM, Financial) appears to be modestly undervalued. The company's financial condition is fair, but its profitability is poor. However, its growth ranks better than 77.37% of 729 companies in the Medical Devices & Instruments industry. To learn more about DexCom stock, you can check out its 30-Year Financials here.
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