It's no secret that helping patients manage diabetes has become a huge market. That's to be expected, since more than 1 out of 10 Americans suffer from the chronic disease.

Two companies at the forefront of the diabetes management market are DexCom (NASDAQ:DXCM) and Tandem Diabetes Care (NASDAQ:TNDM). Both stocks have been big winners so far this year, but which is the better pick for long-term investors now?

Doctor writing diabetes with a marker

Image source: Getty Images.

The case for DexCom

Individuals with diabetes have long had to deal with pesky fingersticks to check their blood sugar levels. DexCom's G6 continuous glucose monitoring (CGM) system eliminates the fingersticks altogether. The system, which includes a small easy-to-wear sensor and a transmitter, sends glucose numbers to the smart devices every five minutes and can provide alerts when levels are too high or too low.

As you might expect, the functionality offered by the G6 CGM system has proven to be very attractive to people with diabetes. That's evident by DexCom's remarkable growth. The company's sales soared 44% year over year in the first quarter of 2020 to $405.1 million. Thanks to the success of the G6 system, DexCom is also now highly profitable. 

While DexCom temporarily suspended its 2020 full-year guidance due to the uncertainties created by the COVID-19 pandemic, the viral outbreak hasn't seemed to negatively impact the company's finances. It could even experience a boost in sales as hospitals use the G6 CGM to monitor critically ill patients during the pandemic.

Wall Street analysts project that DexCom will generate average annual earnings growth of more than 50% over the next five years. One way that the company could achieve this level of growth is by increasing its market share outside the U.S., where CGM systems aren't as heavily used.

Probably the greatest growth driver for DexCom over the long run, though, will be innovation. The company has a successor to the G6 -- the G7 CGM system -- on the way.

The case for Tandem Diabetes Care

Tandem Diabetes Care ranks as a top leader in the insulin pump market. The company's t:slim X2 pumps integrate with DexCom's G6 CGM and automatically adjust insulin levels, as needed, to keep glucose levels within the desired range.

Like DexCom, Tandem has delivered impressive growth. The company reported sales of $97.9 million in Q1, up 48% year over year. Tandem hasn't achieved profitability yet, but its bottom line is trending in the right direction.

The COVID-19 pandemic could temporarily slow Tandem's growth somewhat. Tandem's customer base is predominantly comprised of individuals with type 1 diabetes who could be less likely to visit physicians except for urgent care needs. The company's growth depends, in large part, on physicians recommending its insulin pumps to their patients.

Over the longer term, though, delivering solid growth shouldn't be a problem for Tandem. Wall Street looks for the company to generate similar earnings growth as DexCom over the next five years.

International markets present a big opportunity. Tandem plans to enter new markets including Germany, France, and Benelux in 2020. New innovations are also as important for Tandem as they are for DexCom. For example, Tandem's Basil-IQ technology for its t:slim X2 pump can predict and help prevent low glucose levels. It's the kind of advancement that should help Tandem remain a winner for years to come.

Better buy

My view is that both DexCom and Tandem Diabetes Care still have plenty of room to run. The rise in the number of new diagnoses of diabetes, unfortunately, isn't likely to slow down anytime soon. 

I think that DexCom is the better healthcare stock to buy right now. DexCom is already profitable and can reinvest its earnings into expansion and research and development. I like the prospects for the new G7 CGM system that's on the way.

The main drawback for DexCom is its sky-high valuation. But if the company can grow as much as many expect it will, its current valuation shouldn't be a problem.