DexCom Inc (DXCM, Financial), a prominent player in the medical devices industry, has been attracting attention from investors recently. With a daily gain of 2.01% and a 3-month loss of -25.45%, the stock's performance is raising questions about its true value. Furthermore, the company's Earnings Per Share (EPS) (EPS) currently stands at 0.86. The critical question that arises is whether the stock is significantly undervalued. This article aims to provide an in-depth analysis of DexCom's intrinsic value to help investors make informed decisions.
Company Overview
DexCom Inc designs and commercializes continuous glucose monitoring systems for diabetic patients. These systems serve as an alternative to traditional blood glucose meter processes. The company is also evolving its systems to provide integration with insulin pumps. With a current stock price of $95.18, DexCom has a market cap of $36.90 billion. However, the GF Value, an estimation of its fair value, stands at $144.4. This discrepancy between the stock price and the GF Value necessitates a deeper analysis of the company's value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on three factors: historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
For DexCom (DXCM, Financial), the GF Value indicates that the stock is significantly undervalued. This conclusion is based on key factors such as historical multiples, the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. Given DexCom's current price of $95.18 per share and a market cap of $36.90 billion, the stock appears to be significantly undervalued.
As DexCom is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company.
DexCom has a cash-to-debt ratio of 1.08, which is worse than 64.66% of 832 companies in the Medical Devices & Instruments industry. GuruFocus ranks the overall financial strength of DexCom at 7 out of 10, which indicates that the financial strength of DexCom is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. 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 73.07% of 828 companies in the Medical Devices & Instruments industry. Overall, the profitability of DexCom is ranked 4 out of 10, which indicates poor profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. DexCom's 3-year average revenue growth rate is better than 75.41% of 728 companies in the Medical Devices & Instruments industry. DexCom's 3-year average EBITDA growth rate is 31.8%, which ranks better than 77.95% of 730 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
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 11.9.
Conclusion
Overall, DexCom (DXCM, Financial) stock gives every indication of being significantly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 77.95% of 730 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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