Why DexCom Shares Took Flight

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of DexCom Inc.  (NASDAQ: DXCM  ) , a medical device company focused on creating continuous glucose monitoring systems, skyrocketed as much as 27% after reporting its second-quarter earnings results.

So what: For the quarter, DexCom delivered a huge surge in revenue -- 53% to be exact -- to $35.8 million, although product revenue was the real star, up 65%. The company's quarterly loss narrowed by a third to $0.14 per share from $0.21 per share in the year-ago period, but includes quite a few one-time expenses. With those pulled from the equation, DexCom lost just $0.02 per share on an adjusted basis. Comparatively, the Street had expected revenue of just $31 million and an EPS loss of $0.15.

Now what: I have to eat some crow here and admit that this quarter was a lot better than I anticipated from DexCom. On paper, DexCom's potential market is huge with some 25 million people in the country living with diabetes and close to 80 million others in the pre-diabetic stage. However, my initial contention that DexCom's surge is occurring without any bottom-line profits remains valid. Revenue growth is surging and losses are narrowing, but we've yet to see DexCom report a profit -- and it may still be a while before this happens given the fierce competition within the sector over monitoring devices. As such, and following such a huge run higher, I'd suggest sticking to the sidelines until such time as DexCom can put its business in the black.

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  • Report this Comment On August 23, 2013, at 4:38 PM, BeastoftheEast2 wrote:

    Sean, Dexcom is a great company and deserves more praise than they receive. So thanks for some good publicity on a company I own some shares in. While the article in general was positive I would like to correct your saying that the competition is fierce for Dexcom. You could not be more wrong in saying that. They only have one competitor. Dexcom makes a CGM, a continuous glucose monitor, that is worn on the body for a week or more and which provides a new sugar reading every 5 minutes. That's 12 per hour and 300 each day. The numbers are plotted on a graph so the trending levels can be seen easily. Other basic blood sugar monitors, the ones you are suggesting Dexcom is competing with, they only provide a single blood sugar reading. Remember, Dexcom provides you 300/day and these numbers are sent via RF signal in real time to a receiver you keep in your pocket. I wear a Dexcom G4 and have been diabetic for 23 years. The "continuous" part of the monitoring is the key here; it has been a life changing piece of equipment for me, and many other diabetics whom I know. Their only competition is with Medtronic, who makes a CGM too. However, I feel similar to most diabetics who have tried both and feel the Medtronic one is not as good. Dexcom possesses game winning technology with their business, and it is unique in it's functioning. I believe Dexcom as a company will continue to grow. And, get used to the surprising quarterly results, as there will be more of them in the future.

  • Report this Comment On September 26, 2013, at 4:23 PM, cssinisi wrote:

    Have to agree with BeastoftheEast2. I have been a type 1 for 32 years. Blood sugar readings done every few hours do not even compare to CGM. You have to know where you are going and where you have been. I also use Dexcom and own DXCM stock. Haven't tried Medtronic, but have no desire to try it. Dexcom works too well. I expect every hospital using CGM in the very near future as well as patients. Can't wait to use the next generation Dexcom which will use a cell phone as a receiver.

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