There's a simple, straightforward argument for investing in Dexcom (NASDAQ:DXCM). The company specializes in the development of continuous glucose monitoring (CGM) systems, which help diabetes patients keep track of their blood glucose levels. Diabetes is the seventh leading cause of death in the country, according to the U.S. Centers for Disease Control and Prevention (CDC). About one person in 10 in the U.S. has diabetes, and 88 million have pre-diabetes. 

Monitoring blood glucose levels is critical for those who suffer from this condition, meaning Dexcom's services are in high demand. Perhaps as a result of these factors, the company's stock has performed well recently. Year to date, Dexcom's shares are up by 88%.

Still, there's more to consider before pulling the trigger. Let's take a closer look at Dexcom's business, financial results, and competition, and decide whether it is worth buying its shares today. 

DXCM Chart

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Dexcom's first-quarter results

Dexcom's main growth driver is the G6 CGM System. This digital device allows diabetes patients to monitor their blood sugar levels continually. As such, it presents several advantages over the old-fashioned glucose monitoring system. Traditionally, those with diabetes had to rely on pesky fingersticks that could only tell one's blood glucose level at a particular point in time. The G6 System (and other devices like it) is more convenient. 

Dexcom's crown jewel continues to make significant headway, and as a result the company has been posting strong financial results. During the first quarter, Dexcom recorded revenue of $405 million, representing 44% year-over-year growth. The company also reported operating income of $33.6 million, compared with the operating loss of $14.4 million it reported during the year-ago period. Lastly, DexCom's net income per share of $0.22 was significantly better than the net loss per share of $0.30 it recorded during the prior-year quarter. 

"Our strong first-quarter results demonstrate the continued momentum in our business, driven by growing awareness and customer satisfaction with our G6 CGM technology," said Dexcom CEO Kevin Sayer. 

Doctor holding a sign that says "diabetes."

Image source: Getty Images.

There is a lot of room to grow for Dexcom, both in the U.S. and abroad. Domestically, the company estimates that the type 2 diabetes space remains underpenetrated, with its total market size reaching about 27 million patients. In international markets, the use of CGM systems "remains far less than that of fingersticks," according to Dexcom executive vice president Steve Pacelli.

Further, the company is currently developing a successor to its G6, appropriately named the G7. The G7 will present several advantages over the G6. For instance, it will be smaller and last longer than its predecessor. This device is currently undergoing a pivotal clinical trial, and despite a delay caused by the COVID-19 pandemic, Dexcom has high hopes for the G7. Thanks to the market opportunities in the U.S. and abroad, and the potential launch of the G7 in the future, Dexcom could have a bright future ahead. 

Challenges

Dexcom faces stiff competition within the CGM market. Two of the company's peers within this segment are Abbott Laboratories and Medtronic. Abbott's Freestyle Libre is a CGM system that continues to make significant headway. During the first quarter, sales of this device soared by more than 60% year over year, according to the company. Meanwhile, Medtronic's MiniMed 670G is an insulin pump that comes with its own CGM.

The company also offers other devices within its diabetes group business. During its latest reported quarter, Q3 2020, Medtronic's diabetes segment recorded revenue of $610 million, which remained flat compared to the prior-year quarter. But thanks to the increased adoption of the MiniMed 670G abroad, Medtronic's revenue in international markets grew by 13.7% year over year. The competition from Abbott, Medtronic, and others will continue to present a strong challenge for Dexcom.

The verdict

Dexcom's potential market remains vast, and the company will likely continue to make steady progress within its niche thanks to its ability to innovate. And while I think investors should keep an eye on the competition, I believe Dexcom is poised to remain a leader in the CGM business, and the company will continue to outperform the market in the long run. In short, Dexcom is a healthcare stock worth buying today.