With a daily gain of 2.71%, a 3-month loss of 43.13%, and an Earnings Per Share (EPS) of 0.86, DexCom Inc (DXCM, Financial) presents an intriguing investment opportunity. In this article, we aim to answer a critical question: is DexCom (DXCM) significantly undervalued? By delving into the company's financials and the GF Value, we will provide a comprehensive analysis of DexCom's valuation. Read on to uncover valuable insights.
Company Introduction
DexCom Inc (DXCM, Financial) specializes in designing and commercializing continuous glucose monitoring systems for diabetic patients. These systems serve as an alternative to traditional blood glucose meter processes. DexCom is also evolving its systems to integrate with insulin pumps from Insulet and Tandem.
Despite the recent market price of $78.26 per share, the GF Value, our proprietary measure of the stock's intrinsic value, estimates DexCom's fair value at $145.37. This suggests that DexCom (DXCM, Financial) might be significantly undervalued. To understand this better, let's look at DexCom's income breakdown:
Understanding the GF Value
The GF Value is an exclusive measure that represents the current intrinsic value of a stock. It's calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given that DexCom's current price of $78.26 per share is significantly below the GF Value Line, it appears to be significantly undervalued.
Due to this undervaluation, the long-term return of DexCom's stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Hence, it's critical to review a company's financial strength before investing. DexCom's cash-to-debt ratio is 1.08, ranking lower than 65.02% of 832 companies in the Medical Devices & Instruments industry. However, with an overall financial strength rank of 7 out of 10, DexCom's financial strength is fair.
Here's a look at DexCom's debt and cash over the past years:
Profitability and Growth
Investing in profitable companies is less risky, especially if their profitability is consistent over the long term. DexCom has been profitable 4 times over the past 10 years. In the past twelve months, the company had a revenue of $3.20 billion and an Earnings Per Share (EPS) of $0.86. Its operating margin is 14.02%, ranking better than 72.98% of 829 companies in the Medical Devices & Instruments industry. However, with an overall profitability rank of 4 out of 10, DexCom's profitability is considered poor.
One of the most critical factors in a company's valuation is its growth. DexCom's average annual revenue growth is 19.4%, ranking better than 75.21% of 726 companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth is 31.8%, ranking better than 77.91% of 729 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to 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 is higher than the WACC, it indicates that the company is creating value for shareholders. In the past 12 months, DexCom's ROIC was 14.14, while its WACC came in at 11.79.
Here's the historical ROIC vs WACC comparison of DexCom:
Conclusion
In summary, DexCom's stock shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is poor. However, its growth ranks better than 77.91% 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
