Why DexCom Inc. Shares Briefly Swooned

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 (NASDAQ: DXCM  ) , a developer of continuous glucose monitoring systems, tumbled as much as 14% after reporting its first-quarter earnings results after the closing bell last night. Shares have since recovered nearly all of their losses and are trading around the flat line as of this writing.

So what: For the quarter, DexCom reported robust product revenue growth of 68% to $46.7 million as total revenue jumped to $47.1 million, a 59% increase from the prior year period. Despite its revenue growth, net loss widened to $12.5 million, or $0.17 per share, from $11.1 million or $0.16 during this quarter last year. By comparison, Wall Street was anticipating just $44.1 million in sales, but a narrower loss of $0.11 per share. The primary culprit was a 54% increase in total operating expenses tied to the launch of new monitoring systems and higher research and development costs.

Now what: DexCom continues to look like a winner on paper with close to 26 million people in this country having diabetes. Logically, any company that offers glucose monitoring devices should be a long-term success story. While we've witnessed DexCom's revenue soar in recent years, I'm personally still waiting for its bottom line to catch up with its monstrous share-price appreciation. With losses ongoing and the company valued at more than 100 times next year's profit projections, I'd suggest investors stick to the sidelines and wait for DexCom's valuation to dip considerably, or its profits to soar, before even attempting to dip their toes in the water.

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  • Report this Comment On May 07, 2014, at 1:55 PM, cpalerm wrote:

    Sean, you use a figure of 26 million people with diabetes as the market opportunity. But currently only people with type 1 diabetes are the primary market for CGM; of all the diabetes population, only about 10% have type 1 diabetes, with the majority having type 2 diabetes. Thus a better market size for Dexcom is 2.6 million (the 10% figure is a rough estimate, but generally accepted).

    That said, that is only in the U.S.; worldwide the estimate is that 382 million people have diabetes, so about 38 million are type 1 (http://www.idf.org/worlddiabetesday/toolkit/gp/facts-figures.... The incidence of both type 1 and type 2 diabetes is rising, so this population will also grow.

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