In sports, fans love rooting for an underdog. It's inspiring to see a team pull together to win against all odds. And in investing, it can be thrilling to bet on a company's turnaround, especially one with a mission of improving the lives of millions of patients through innovation. Case in point: Tandem Diabetes Care (NASDAQ:TNDM).

This medical device stock has pulled off an impressive reversal in its fortunes that both patients and investors are thankful for. But with its stock up 166% in two years, is there still room to grow?  

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Innovating on insulin pumps

Tandem Diabetes Care credits its mission of relentless innovation and a revolutionary customer experience for its recent success. The company went from the verge of bankruptcy in 2018 to become a $5 billion stock today that has beat the market by a huge margin for the past two years. And its target market is enormous, with more than 34 million Americans or 10.5% of the population who had diabetes in 2018, according to the Centers for Disease Control and Prevention's Division of Diabetes Translation.

Tandem is an insulin pump provider and the company has formidable competition from competitors including Medtronic (NYSE:MDT) and Insulet (NASDAQ:PODD) The t:slim X2 is the smallest pump that is enabled with continuous glucose monitors (CGMs), it's a touch screen, and it is updatable with an automated bolus correction feature. Tandem compares its t:slim X2 to the Medtronic 670G insulin pump and the Tandem product compares very favorably. Tandem works closely DexCom (NASDAQ:DXCM) and utilizes DexCom's CGM technology in its pump design. As DexCom wins new customers, Tandem enjoys more growth.

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Traditionally, patients with diabetes had to perform multiple daily injections. With Tandem's disruptive integrated pump, the monitoring of glucose levels and the automatic delivery of insulin is seamless and provides patients considerable freedom in their daily lives. Only 30% of type 1 diabetes patients in the U.S. utilize an integrated system and that figure is far lower in the rest of the world where it is estimated that between 10% to 20% utilize an integrated system. There is a great opportunity for Tandem to gain significant market penetration in the U.S. and the rest of the world, which would catalyze its stock even higher over the next decade.

Growth in the coronavirus pandemic

Tandem's Q3 revenue was $124 million and revenue growth was 31% year over year despite COVID-19 headwinds. Year to date, the company's worldwide sales through Q3 were $331 million which represents growth of 30% year over year. Tandem is aggressively trying to grow internationally and now has a customer base of 190,000 customers. The goal for Tandem by the end of 2024 is to grow to 500,000 customers. While this may seem ambitious, the market for insulin pumps in the U.S in 2018 was $3.3 billion. The market is forecast to grow by a compound annual growth rate of 9.6% through 2026 to $6.9 billion. While it may seem that a Tandem 30% growth rate is unrealistic, Tandem has a very technically sound product and is disrupting the diabetes space. Further, the company owns a small piece of the overall sales pie so this growth ambition seems quite reasonable. With estimated 2020 global sales of approximately $4 billion, Tandem has a little over 10% of the total insulin pump market.

On the Q3 2020 conference call, Tandem Diabetes Care CEO John Sheridan said:

The foundation of our overall strength continues to be the demand for our t:slim X2 system. Feedback remains overwhelmingly positive from experienced pumpers and people who are converting from multiple daily injection. Nearly 90% of respondents to our recent customer survey showed that people chose the t:slim X2 for their first pump because of our advanced technology offerings such as Control-IQ, CGM integration and software updates. This supports our belief that technology that reduces the daily burden of living with diabetes drives therapy adoption.

The good news for Tandem is that the company has a strong pipeline of products planned for launch in the next few years and plans for new product launches in 2021.

Is Tandem Diabetes Care a buy today?

The stock is up 50% this year compared to the S&P 500's growth of 14% however, the stock was as high as $121 in early November. The stock has pulled back due to competition concerns with Medtronic, a company with 30 times Tandem's market cap. Medtronic will certainly keep Tandem on its toes, but the smaller competitor has one huge advantage; a capital allocation model that has one focus, to improve the lives of diabetes patients. Medtronic has many different business segments so its resources are divided across the many areas in which it competes. There is also more room for Tandem to grow its market size from here, many times over.

Tandem has a lot to prove; its growth rates are enviable and its focus on disrupting the diabetes pump market is admirable. For investors, this stock deserves consideration because it's highly likely it will continue to beat the market for many years.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.