What happened

Shares of the diabetes medical device giant DexCom (NASDAQ:DXCM) gained a noteworthy 10% during the month of January, according to data from S&P Global Market Intelligence. Its stock is now trading at all-time highs as a result of this latest double-digit rally.

What caused DexCom's stock to catch fire yet again in January? The short answer is that the stock has been on an absolute tear ever since the company reported third-quarter earnings back in early November 2019. In fact, DexCom's stock has gained an astounding 59% since its last earnings report. 

A female doctor checking the blood sugar of an elderly woman.

Image source: Getty Images.

So what

Investors appear to be gobbling up this medical device stock for two interrelated reasons:

  1. DexCom's continuous glucose monitoring (CGM) franchise -- headed up by the groundbreaking G6 CGM system -- has transformed the company into a juggernaut. Over the past 12 months, the company's annual revenue has risen by a staggering 42% to $1.47 billion. In 2020, DexCom is expected to have another banner year, with its top line rising by 21.4%.
  2. A key component of DexCom's wildly successful growth story is a new partnership with diabetes drugmaker Eli Lilly (NYSE:LLY). In late December, the two companies announced a non-exclusive agreement to integrate DexCom's CGM platform into Lilly's personalized diabetes management system. As Lilly is one of the biggest diabetes players in the world, this deal should provide a major competitive advantage for DexCom in the years ahead.  

Now what

Is DexCom stock worth buying at these lofty levels? At 16.5 times trailing-12-month sales, this red-hot growth stock may have trouble printing fresh highs anytime soon. Put simply, DexCom's stupendous sales growth appears to be baked into its valuation at this point.