In this episode of Industry Focus: Wild Card, Nick Sciple and Brian Feroldi take a look at the healthcare sector, specifically diabetes CGM (Continuous Glucose Monitoring) devices. These administer small doses of insulin to maintain the blood glucose level in patients. We discover which new technologies are making this process more patient-friendly and how the three companies we're discussing today are making this possible.

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This video was recorded on Feb. 19, 2020.

Nick Sciple: It's Wednesday, February 19th. Welcome to Industry Focus. I'm your host Nick Sciple, and for Wild Card Wednesday, we're going back to the healthcare well and we're going to be talking about diabetes stocks. I've got Brian Feroldi here with me today. Brian, how are you doing?

Brian Feroldi: Hey, Nick, how are you?

Sciple: I'm doing great. You know we're talking about healthcare today. You said you went to a doctor's appointment this morning. How are you feeling?

Feroldi: Oh, I'm feeling good, but the funny thing is, I just go to a local small family physician. It was my annual physical. And of course, I walk in the door, and what do I have immediately handed to me? A paper and a pencil to refill out my name, my address, my phone number -- even though I've been going to the same doctor for about a decade now. So [it] just shows you how much room there is for innovation in the healthcare space.

Sciple: Oh, absolutely. And I think that's something we're going to be talking about today. When it comes to innovation and healthcare, that's diabetes, specifically the CGM (Continuous Glucose Monitoring) market and the insulin -- that's exactly what we're going to talk about today when it comes to innovation in healthcare in the diabetes space. I know a lot of folks are probably familiar with diabetes on a surface level. But just to start off, before we dive into these companies, Brian, can you give us a high-level overview of what diabetes is and how it affects patients?

Feroldi: Sure. So diabetes is when the body loses its ability to make enough insulin to satisfy its needs. And insulin is a hormone that's secreted by the pancreas into the blood. And insulin greatly assists with the absorption of glucose, which is also going to sugar into the liver, fat and most importantly, the other muscular cells. So without enough insulin in the body, sugar can't be absorbed properly by the muscles. And all of that excess sugar that's in the bloodstream just continues to build up and up and up and up, and that can lead to a huge range of health problems, both in the short-term -- such as if you have really high blood glucose levels your vision can become blurry, you can have excessive thirst or hunger, you can get tired very easily. And more importantly, over the long term, if you consistently have high blood sugar levels, you can lose a significant amount of waste and you triple your chances of having a heart disease or a stroke.

So broadly speaking, there are two main types of diabetes. The first is called Type 1, and that's an autoimmune disease where your body attacks and kills the insulin-producing cells that are in the pancreas. And when that happens, the person completely loses the ability to produce any insulin at all, and in that scenario, a patient with Type 1 has to take artificial insulin to survive. And just to throw some numbers around there, there's about roughly 1.5 million Americans that have Type 1 diabetes.

Type 2 diabetes is when the pancreas doesn't make enough insulin to satisfy its needs or the body becomes resistant to the insulin that it does make naturally -- and that is usually as a result of obesity. And Type 2 diabetes is far more prevalent than Type 1. In America, there's about 28 million Americans that have Type 2 diabetes. And there's another 84 million Americans that are at risk of developing diabetes -- that's called prediabetes.

So diabetes is a major health problem.

Sciple: Yeah, absolutely. When you talk about these patients, about 95% of those are the Type 2 diabetics, that it's primarily tracked back to diet, dietary choices, and that sort of thing. Type 1 diabetics, it's autoimmune, this is congenital. There's really not that much we can do about that. But to your point, diabetes, when it is not well-treated, can lead to some of the most expensive healthcare events that a patient can have. It's one of the leading causes of kidney failure, one of leading causes of amputation. For most diabetes patients, whether or not they have one of these huge complications, it's still a large number of patients that are affected.

I pulled a stat. We're going to talk about Dexcom (DXCM 0.87%) later today. Dexcom CEO at the JPMorgan Healthcare Conference cited that only 6% of people with diabetes actually don't suffer from complications. So most patients suffer these issues. Now, traditionally how diabetes was monitored was through the traditional finger pricks. Each day, you would prick your finger and check your blood sugar level, make sure it's in the appropriate range. However, the technology we're going to talk about today has really changed the standard of care for how, at least for Type 1 patients are handling their diabetes today. Can you talk a little bit about that?

Feroldi: Yeah. So to your point. So for decades, the way that a person with diabetes would monitor their blood sugar levels was with a finger stick. So, they would prick their finger and take a drop of blood, apply it to a strip that went on a glucose monitor and a point in time reading would then be produced. That sounds good and useful, but the truth is that blood sugar levels change rapidly throughout the day based on a whole range of factors. So eating food, exercising, your mood -- all those things can actually greatly increase or reduce, greatly impact your blood sugar levels. So finger sticks, where the compliance would be to say, "Prick your finger four times per day." Well, even that much information -- which not everybody with diabetes would even do -- was still nowhere near enough to accurately figure out what was happening with a person's glucose levels 24 hours a day.

So about a decade ago, the first continuous glucose monitors came to market. And these were devices that are attached directly to the skin. They're small, say, about half the size of a box of Tic Tacs, and they are worn. They put a little sensor underneath the skin and they continuously upload a blood sugar reading to a wireless handheld device 24 hours a day. So many of them give readings, say, every five minutes. And with that much data, suddenly a patient could get a much better idea of how their blood sugar levels are changing throughout the day and they could make therapeutic decisions based on that to keep their blood sugar in a much healthier range than they could have before.

Sciple: Absolutely. When healthcare providers are treating folks with diabetes, one of the No. 1 things they want to target is how long can we keep our patients in the targeted range of glucose levels. And when you look at a finger prick, even if you do that four times a day, that is a limited insight into how your glucose is fluctuating throughout the day. So what these CGM's allow patients and providers to do is get a more accurate picture of how often they're staying within that target range. And that tends to lead toward better outcomes for patients, which is very important, obviously, from a patient's point of view, not having to prick your finger every day, getting a better perspective of your health condition is valuable. But it's also valuable for these insurance payers, because we talked about earlier how significant the expense of diabetes treatment is. And that's only really increased over the past decade. But if we can get a better picture of how glucose levels change throughout the day, can keep patients in that target range over a longer period, that should be better for patients and they'll have better outcomes from a healthcare point of view, and better for insurance payers in that the risk of these high-expense complications like amputations, kidney failure, that sort of thing, really reduces. So, both from the patient's perspective and from the payer perspective, this therapy really has a lot of appeal.

Feroldi: Yeah, completely. And one point that we need to make sure our listeners are aware of is, when you have diabetes, as we said, your blood sugar can constantly move up and down based on what you're doing. The traditional way to bring your blood sugar down is, if you have Type 2 diabetes, with diet and exercise changes or by taking drugs. If you have Type 1, the only way to bring your blood sugar level down is to take artificial insulin. Now, that's good if you have high blood sugar and you're taking insulin to bring it down, but figuring out the proper dose is critical. If you take too much insulin, then your blood sugar can drop well below a healthy level and you can pass out and go into a coma immediately. So it's really tricky for people to -- it's a balancing act between too much insulin and not enough insulin that people have to walk on the tightrope. And what CGM devices allow people to do is to see that they're going to be heading in a trouble zone before it actually happens, and they can take action to prevent those extremes from happening. And CGM devices are more expensive than traditional blood glucose monitoring, but if you can just keep a patient out of a hospital one time in, say, a decade, then the therapy pays for itself.

Sciple: Yeah, absolutely. I think we list out these benefits of CGM, and there is significant growth in the space, but we need to note that penetration is still relatively low. Among the Type 1 population, we're still looking at 35% to 40% penetration. You'd expect penetration to be lower among Type 2 -- these are folks who are [on] less intensive insulin therapy -- but that's still really looking at 15% penetration. So really a lot of growth opportunity in this space.

And that's what is going to transition us to talking about the first stock we're going to talk about today is Dexcom, which is one of the earliest pioneers in CGM. And if you look at the stock, it has just been an incredible performer over the past 10 years, five years, one year, anyway you look at it. Over the past 10 years, the stock is up 2,500%. It's a triple over the last five years, it's a double over the past year. Brian, when you look at this company, what's been driving this growth?

Feroldi: Yes. So Dexcom has kind of been the leader in the CGM space for more than a decade. There are other competitors that they've gone up against, most notably would be Medtronic, which used to completely own and dominate the diabetes-device space. But Dexcom has always been one step ahead of them with a very critical component of CGM, which is accuracy. Having the most accurate results is critical to being able to make therapeutic changes when necessary, and Dexcom has solely focused on continuous glucose monitoring space, and that has helped to keep them one step ahead of the competition. And as you alluded to before, this company has been a monster winner for investors because they consistently attract new users to their device. And Dexcom actually has a business model that I personally love, which is the razor and blade. So Dexcom not only sells the handhold controller, which is used to actually receive the data, but the sensors that they wear on their body must be changed every 10 days. So this is a razor-and-blade model. So as this company adds new users every year, its revenue has just soared.

Sciple: Yeah. If you look at their most recent quarter, they called out 650,000 active regularly reordering Dexcom users. So these are patients who are using their CGM. Every 10 days they need a new Dexcom sensor to replace their existing one. The huge launch for growth over the past couple of years has been Dexcom's G6 product they released in 2018. That was their first product that came to market that didn't require calibration, which has been huge for the CGM space. So prior to the Dexcom G6 and also the Abbott Labs FreeStyle Libre that came out just a little bit before Dexcom G6 product. Even CGM wearers, at least twice a day would have to prick their finger and calibrate the sensor to make sure it was accurately reading. However, in the past couple of years, we've seen this influx of no-calibration sensors, which has really grown the market that much more, it makes the appeal from a patient point of view that much better. You don't have to prick your fingers at all, which has led to some massive growth for the business.

Feroldi: Yeah. That is something that held up adoption for a couple of years, where as you said, even though patients were willing to upgrade, were willing to wear the sensor 24 hours a day. They did still have to manually prick their finger and manually enter results into their CGM to actually calibrate it, so that it was as accurate as possible. Dexcom has continually advanced its sensor with each new generation. And as you said, the growth has been explosive in the last few years with the launch of the device that does not require any finger pricks. And you can easily see how that would be extremely compelling for anybody with diabetes to go with a device because you completely give up finger sticks with the most up-to-date sensors.

Sciple: Yeah. Another thing we need to note about Dexcom's positioning in the market. You know, I called out Abbott FreeStyle Libre, the other no-cal CGM product on the market today. Abbott's strategy is more going toward the low-price segment of the market. They have the lowest cost. However, Dexcom's strategy is a little bit different. You mentioned earlier, they are focused on accuracy. They're particularly focused on accuracy in the hypoglycemia area -- that's those issues we mentioned where your glucose can plummet, and it's really scary for patients because they make you pass out or go into a coma.

Another area they focused on, is focused more toward pediatric -- younger patients. They are the only device on the market today that offers the alerts. My cousin, as a matter of fact, is a Dexcom wearer, my uncle has these alerts on his phone. So if over the night the child falls out of their glucose range, an alert will go off on the child's phone or in the parent's phone to alert them to that low-in-range status to get them some food or what have you to keep them out of that low glucose range. So for a parent, it's particularly valuable having those alerts, could lead you to why you would adopt Dexcom over the other product. They also believe that Dexcom's product is approved for people [age] 2 and up, but if you look at Abbott Libre product, it's only approved for older patients.

So Dexcom has been positioning themselves in this premium segment of the market, targeting really easy-to-use products with alerts and that sort of thing, and targeting younger folks, which has really been a good opportunity for them.

Feroldi: Yeah. To your point, Abbott launched its Libre product a few years ago. This is a lower priced product that isn't as accurate as Dexcom, but because they price themselves at such a low and affordable range, they have taken significant market share and their device has been a huge success. So, it is nice to see that patients do have options when it comes to see CGM, and it's also nice to see that price that Abbott came to market with was such a low-price device that it makes the technology that much more affordable.

Sciple: Absolutely, and even with this price competition, when you look at Dexcom results, there's been plenty of room for growth for all these players in this space. So if you look at 2019, Dexcom revenue up 43% for the year. Roughly doubled their revenue over the past couple of years when both of these products came to market. If you look at, even over a longer term, look at their five-year revenue CAGR [compound annual growth rate], over 40%. So just massive growth in this area, as new patients have been moving into adopting CGM.

Another big development was Medicare coverage added in the past couple of years, which has really opened up the population. So even as there has been continued competition on price, which Dexcom expects to continue, as the size of the patient population has grown that has increased opportunities for them.

Feroldi: Yeah. And that was a big concern for investors a few years ago when the Libre was initially approved. When the day that that happened, Dexcom's stock got absolutely walloped. I think it fell 30% or 40%, because investors were so fearful that the lower-price device would just eat their market share. But we've seen exactly the opposite -- we've actually seen both of these companies do extremely well, just because the market for these types of devices has been so huge. And as you alluded to at the top of the show, the penetration rates are still not where they could ultimately go. So this market is so big and diabetes is so prevalent that there is space for more than one winner, and that's exactly what we've seen.

Sciple: Yeah, to your [point], Brian, I mean, that's when I actually went and bought Dexcom after that 30% selldown. I had some close family and friends, as I mentioned, that are users of the product. I asked them whether they were going to switch over. And because of those issues, when it comes to accuracy of the sensor, as well as those alerts and things, if you have younger patients who use the sensor, we actually haven't seen as many people switch over. Now, for new adopters who are price conscious, that's been a concern. But again, we've just seen massive growth.

The other thing is in 2019, Dexcom swung over into GAAP [generally accepted accounting principles] profitability for the first time. Expect to continue that going forward. As you look toward further growth, you mentioned this G7 product coming out. As we evaluate the opportunity for continued growth in the CGM space, how should we be thinking about that, as investors?

Feroldi: Yeah. So one of the biggest opportunities for these companies -- for both of these companies moving forward -- it's just continued adoption. I mean, as the technology continues to improve and more patients learn about the benefits of going to CGM, especially in international markets where the adoption rates are still infinitesimally small when compared to developed markets like the U.S. and Europe, there's still lots of room for these companies to grow. But with Dexcom, in particular, one thing that they're doing to kind of make sure that they have a growing market share is they are actually been very active on the partnership front.

So what we've talked about so far has been the CGM side, the Continuous Glucose Monitoring side, but that's just getting the diagnostics. From there, you still have to take an action once your blood sugar is too high or too low. And if your blood sugar is too high, one of the common ways that people that are insulin-dependent to control their blood sugar is with the use of an insulin pump, and that is something that Dexcom has been very active with partnering with some of the leading insulin pump providers -- to have an integrated system that not only lets patients monitor their blood sugars, but also allows them to take action to make sure they're in a healthy range.

Sciple: Yeah, I think one thing Dexcom calls out repeatedly is that they are the only product on the market -- at least as of the most recent quarter -- that has iCGM (integrated Continuous Glucose Monitoring) designation, which really allows them some flexibility as they integrate with other platforms, which has really been a godsend for them. You mentioned these partnerships, the big ones on the pump side, are Tandem Diabetes (TNDM 2.44%) and Insulet (PODD 0.04%). First off, Tandem Diabetes, when we drive into that one, what should we know about it? That's another one that's just been a monster performer.

Feroldi: Yeah, so Tandem Diabetes is an insulin pump company. And so, an insulin pump, again, has traditionally been a pager-sized device that's worn on the patient's body 24 hours a day. It has a tube that attaches to an infusion set, and through that tube, the insulin pump consistently pushes small doses of insulin into the body throughout the day. And then when a patient eats and requires a larger dose of insulin, they can give themselves a bigger bolus of insulin over time. And pumps have done a great job at mimicking the pancreas to keep the blood sugar in healthy ranges.

However, historically, patients have had to do all the work and all the calculations themselves. So they have to be there with therapy decisions whenever they're about to eat. And that's a big burden for patients who are wearing these devices. It's much better than the other option, which is just to continuously take shots throughout the day, but they're still being onerous on these companies to do so.

So what Tandem has done is they've made a very consumer-friendly device that has a touchscreen on it. It's been smaller than other pumps that are historically available. And they've really gone with consumer-friendly messaging to just make the device as easy to use as possible. And that messaging and the device have really become hugely popular with patients. This company has produced eye-popping growth in the number of units that it shipped for a couple of years. I mean, just in the most recent quarter, their number of pumps shipped and their revenue grew over 100%, and that's on top of growing at 100% for a few years in a row. So this company has been extremely impressive with the execution.

It's still not profitable, it's rapidly approaching profitability as the volume continues to grow. But Tandem has been another monster winner for investors over the last couple of years.

Sciple: Yeah, I just pulled up the chart. Over the past three years, 35-bagger for this stock. I mean -- and it was one of those things, too, Brian, before it had this big run-up -- the stock was really languishing. I mean, it was almost in penny-stock territory. What really launched this turnaround for the company to send the stock to the moon?

Feroldi: Yeah, I will tell you that I personally wrote this company off as dead a few years ago. I mean, they were just sucking wind, they were running out of cash, they had completely exhausted all of their financial resources. And I actually have friends still in the diabetes space, which I used to work in, and they were asking me about this stock under $1, and everything that I looked at just screamed, "Stay away." But they have mounted a comeback like I have never seen in my life. They did a capital raise, which shored up their balance sheet. And their execution to get their pump out has been phenomenal. I mean, this company has produced growth rates like I have not seen in the device space for a long time. In reality, Wall Street was pricing them as if they needed a miracle turnaround, and believe it or not, that's exactly what the company produced.

Sciple: To your point, Tandem has just massively exploded since they've come out with some of these integrated products that have allowed them to talk to the Dexcom sensor and to administer insulin without intervention from the patient. Another one of those pump competitors for Tandem is Insulet. That's a company that you worked at for a number of years, Brian. What should we know about Insulet?

Feroldi: Yeah. So Insulet is also in the insulin pump space. And their innovation in the market was to make the insulin pumps tubeless. So rather than have a pager-like device with a tube attached to it that goes into an infusion set, Insulet actually miniaturized all of the pumping mechanisms and put them into a device that's the size of about a box of Tic Tacs that sticks directly onto the skin. And there's no buttons on it -- it's completely waterproof and it's worn on the body 24 hours a day. And the device actually receives instructions from a wireless remote control.

So this device has been highly attractive to patients that are interested in pump therapy but don't want a lot of the lifestyle negatives that come from wearing a traditional pump. And if you look at their growth, about three-quarters of the patients that are going to Insulet's Omnipod system, the majority of them would not have actually gone with pump therapy at all if it wasn't for the tubeless nature of the device. So they've done a great job at expanding the market. But at its core, the Insulet's Omnipod system works very similar to the other insulin pumps that came before it. So it constantly administers a small dose of insulin 24 hours a day. And then when a patient is going to eat and they need a large dose of insulin, they just pull up their wireless controller and then tell it how much to deliver.

But both Insulet and Tandem have partnered with Dexcom to make what's called a closed-loop system. So that would be a true device that you put on your body and then there's really no thinking involved. The device itself would constantly measure your blood sugar and administer insulin doses based on your readings. That has been the holy grail of diabetes treatment for decades basically. And getting this device to market has proven to be hugely challenging. But we're finally at the point where we're actually getting really close to the first closed-loop systems being involved.

So Insulet, its closed-loop system is going to be called the Omnipod Horizon. That's going to, as we said, deliver insulin into the patient's body whenever high glucose levels are detected. It works directly with the Dexcom system. And this device is estimated to be launched later this year. And actually today, before we started recording, Dexcom and Insulet announced that they were expanding their partnership so that Dexcom's next-generation system, its G7 system, would work directly with Omnipod's next-generation system to provide the first closed-loop insulin pump combination device that would actually work with somebody's smartphone.

So innovation is alive and well in diabetes, and these devices are doing great things to make living with diabetes as easy as possible.

Sciple: Yeah, to your point, Brian, I mean, the software has just been huge for them because they had this system, this tubeless system in place for a long time, which added convenience to patients, but now they can match with their competitors, are matching on the convenience side when it comes to the closed-loop system. So really a big development for Insulet. When you look at these partnerships with Dexcom, what advantage does that give them? When you look at Medtronic, Abbott Labs, these are big medical-device companies that are going to partner with their own pumps and that sort of thing. When you look at this kind of agnostic player, does that give any advantages to Dexcom as the CGM player, that has these shots on goal with lots of other pump manufacturers?

Feroldi: Yeah, I think so. I think that that's going to -- the partnerships with the pump companies is something that separates Dexcom from Abbott, and it should keep it in that premium leadership position. To your point before, I do think that there is going to be pressure on Dexcom moving forward to lower the cost of their device and reduce it because adoption is growing just so rapidly. And now that the Libre is out there and obviously a market success, you could see insurers starting to put the screws to Dexcom to lower their prices.

But Dexcom's next-generation system is supposed to be a lower-cost system. So I do think that there's going to be enough cost savings in the device to not only lower prices for patients and providers, but also for Dexcom to maintain strong margins. But there's no doubt that its partnerships that it has in place with both Insulet and Tandem should help to differentiate it in the CGM space.

Sciple: Yeah, Dexcom's management has actually called this out -- that they expect revenue per patient to decline moving into 2020 as they move deeper into international markets, as you mentioned, as they push deeper into Medicare. Obviously, Medicare has a lot of leverage to squeeze companies on prices. That's something they're calling out. However, just massive growth when it comes to patient adoption. I think that they doubled production this year. They're expecting to double production going into 2020.

I believe, I looked up, Abbott Labs is looking to triple to five times production of their FreeStyle Libre system. So just across the board, massive growth. One area we didn't mention when it came to CGM, but I think we should touch on at least briefly. When you look at these pump providers and just the traditional target market for CGMs is these insulin intensive Type 1 diabetics, that we mentioned earlier. As you look at this Type 2 diabetes market, that's starting to grow their presence in CGM and other kinds of more advanced diabetes therapies. How do you assess the opportunity there for these businesses, both on the pump side and the CGM side for growth in Type 2 diabetes?

Feroldi: Well, historically speaking, most people with Type 2 diabetes, only a fraction of them actually require insulin. And of those [who] require insulin, only a fraction of those actually require intensive insulin management -- which is when you're taking, say, two, three, or four shots per day. So that limits the numbers that you see in the market. So, like, right now, if we're talking about, say, 30 million Americans with Type 2 diabetes, only about, say, 2 million or 3 million of them are on intensive insulin therapy.

However, the [...] there is so huge that even if you account for a small fraction of them to be eventually eligible to receive a pump or a continuous glucose monitor, the numbers are so big that there's still a huge room for both Dexcom and Insulet to grow substantially in the space. So I do think that, as insurers learn more about the benefits and as the technology continues to improve, they will gradually make it easier and easier for patients with Type 2 to adopt pump therapy and CGM therapy. So I do think that that is going to drive all of these companies' growth in the 2020s.

Sciple: Yeah, I think if you look at the TAM [total addressable market] for these businesses we've mentioned, that as penetration in existing Type 1 patients has increased over time, we're at 35% to 40% penetration today. It is a clear trajectory of that trending toward the standard of care, particularly as we see the emergence of these closed-loop systems, no calibration CGM systems that really make it that much more convenient for patients, as well as all the things we mentioned as far as bringing down the cost of treating these folks over time.

The other thing we have to think about, as well, on the Type 2 side is just the number of people with diabetes is growing significantly over time. So when you look at a company like Dexcom or these pump players, not only are we seeing growth as these products become standard of care for existing patients, but the number of patients is growing meaningfully year over year. So when you look at this opportunity going forward, Brian, I mean, Dexcom is at 18 times revenue, so really richly valued. But when you look at these opportunities, it grows over time, how excited would you be to buy the stock today at that valuation?

Feroldi: Well, there's no doubt that investors are paying a premium to get into the stock today, but it does show you that Wall Street really values and is excited about what this company is doing. Valuation has always been a concern with Dexcom the entire way up. So I would say that if Dexcom or Insulet or Tandem excite you as an investor, I mean, all three of these companies are trading at 16- to 20-times sales. So Wall Street is pricing in enormous growth.

And all of them, I think, have deserved their premium valuation. So if I was interested in any of these stocks or if our listeners were interested, I would say these are great stocks to buy in thirds, so you don't go all-in at once, given the huge valuation. You buy a tiny little bit, you wait and see how it goes, and then you add from there.

Sciple: Yeah, I totally agree with that. I tell you, when I first bought Dexcom a couple of years back, I thought it was a little pricey then. Again, that was right after this big new competition came on from the FreeStyle Libre that really scared a lot of folks out of the stock. However, I mean this growth has been massive. If you look back at this company, it's very rare you can see a company that's posted pretty much a decade worth a plus-40% revenue growth with really no signs of slowing up in any significant way.

Prices are coming down, that's a concern, but as the patient population grows in a really significant [way], there's big opportunities for these companies. I don't know that I would be -- to your point -- taking a full possession at 18 times sales, but this is a company I would really consider buying in thirds. It is my belief that over time, CGM and pump therapy for the average diabetes patient is going to become standard of care.

Feroldi: Yeah, I think that that's correct. The real challenge that these companies are going to have to face is they're going to also have to maintain their profitability. And as they continue to grow and become standard of care and there's likely to be a big pressure on them to continually reduce price. So far, these companies have had no problem dealing with that issue. The big question moving forward to me is, will they be able to continue to do so?

I still have questions about that personally, so again, I wouldn't go whole hog in any of these stocks. But again, the addressable market here is so massive, and it's still growing, that there's reason for investors to be excited about all of these companies.

Sciple: Yeah, I think, regardless of whether you're comfortable investing in these companies today, this is an area of the healthcare industry to really pay attention to. The American Diabetes Association calls out that 1 in 7 healthcare dollars spent in the U.S. are related to diabetes or diabetes complications. So these are going to be real important businesses going forward. I don't think diabetes, as a condition, is going away.

So before we go away, I want to ask our listeners one small favor. We're taking a survey and we'd like you to participate. It helps us learn more about our listeners. No matter how long you've been listening or how frequently you listen to the show. It's quick, it's anonymous. So if you can take a few minutes to help us out, we would really appreciate it. And you can find the listener survey in [the] description of this episode.

Brian, thanks, as always, for coming on Industry Focus, sharing your knowledge, and I hope to have you on again soon.

Feroldi: Sounds like a plan, Nick... have a great day.

Sciple: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear.

Thanks to Austin Morgan for his work behind the glass. For Brian Feroldi, I'm Nick Sciple, thanks for listening and Fool on!