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Why Novocure, Insulet, and Dexcom Are Rising Today

By Brian Feroldi - Mar 19, 2020 at 3:43PM

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High-growth medical-device companies are having a good day.

What happened

Shares of Novocure (NVCR -3.34%)Insulet (PODD -4.75%), and Dexcom (DXCM -6.97%) all rose by double digits in afternoon trading on Thursday. As of 3:15 p.m. EDT, these healthcare stocks were up 10%, 7%, and 10%, respectively. 

So what

The major U.S. stock indexes all started the day down but rallied in afternoon trading on Thursday. The S&P 500 and Dow Jones Industrial Average were up more than 2%, while the tech-heavy Nasdaq was up more than 4%. 

Dozens of beaten-down, high-growth companies are outpacing the market's strong returns today, even though they didn't produce any market-moving news. Novocure, Insulet, and Dexcom were included in that group.

All three of these medical-device markets are growing their top lines at a double-digit rate and have been sold off hard in the COVID-19-inspired bear market. And yet, none of these companies released any noteworthy information today. 

Finger hitting keyboard button that says buy

Image source: Getty Images.

What's mystifying about these companies' stock jumps is that the strength is not being experienced by the entire medical-device industry. The iShares U.S. Medical Devices ETF (IHI -2.32%) -- which is an exchange-traded fund that holds positions in 56 medical-device companies -- is trading down slightly today.

Now what

Novocure, Insulet, and Dexcom have been walloped over the past month. Even including today's bumps, all three of these stocks are still down more than 30% from their February highs. The good news for investors is that all three of the companies are still firmly in high-growth mode.

Novocure, which makes a medical device that's primarily used to treat brain cancer, reported sales growth of 42% in 2019 to $351 million. That strong growth helped to shrink the company's net loss by almost 90% to just $7 million for the full year. With several clinical trials underway that could significantly increase its commercial potential, Novocure could remain in expansion mode for years to come.

Insulet, which markets a tubeless insulin pump that's used to treat diabetes, also had a banner 2019. Sales grew 31% to $738 million, and the company produced net income of $11.6 million. Management is targeting $1 billion in revenue by 2021 and a "mid-teens operating margin." If these numbers are achievable, then Insulet's profitability is poised to significantly expand over the next few years.

Dexcom, which makes a continuous glucose monitor that's used by people with diabetes, grew its top line 43% in 2019 to $1.48 billion. Dexcom also recently crossed into the black, posting $100 million in profit for the full year. Management expects growth to slow in 2020 but is still targeting top-line growth between 17% and 20%. That's quite impressive, given this company's size.

Valuing high-growth companies is tricky when times are good but nearly impossible when volatility is high. That makes it likely that all three of these businesses are going to continue to experience huge share-price swings based on the latest COVID-19 news of the day.

Longer term, all three of these industry disruptors continue to look poised for more market-beating growth. 

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Stocks Mentioned

DexCom, Inc. Stock Quote
DexCom, Inc.
$309.00 (-6.97%) $-23.16
Insulet Corporation Stock Quote
Insulet Corporation
$190.53 (-4.75%) $-9.50
iShares Trust - iShares U.S. Medical Devices ETF Stock Quote
iShares Trust - iShares U.S. Medical Devices ETF
$52.95 (-2.32%) $-1.26
NovoCure Stock Quote
$69.30 (-3.34%) $-2.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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