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Why Tandem Diabetes Care Stock Rose 17.1% in December

By Jim Halley – Jan 10, 2022 at 5:04PM

Key Points

  • The company said it has improved gross margin by 500 basis points since 2018.
  • Its t:slim X2 insulin pump with Control-IQ has seen strong sales.
  • The stock is trading at a high valuation due to investor optimism.

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Fast-improving financials show the medical equipment company has plenty of potential.

What happened

Shares of Tandem Diabetes Care (TNDM 3.02%), a medical equipment company that focuses on products for diabetics, such as insulin pumps, climbed 17.1% in December, according to data provided by S&P Global Market Intelligence. The stock was as low as $122.21 on Dec. 2, but steadily climbed throughout the month, and was as high as $153.95 on Dec. 30. Over the past year, the stock has risen more than 30%, and it has a 52-week low of $76.19 and a high of $155.86.

A hiker checks on the readings of an insulin pump.

Image source: Getty Images.

So what

There are plenty of reasons lately for investors to get behind this stock. The company issued guidance for annual revenue between $685 million and $695 million, representing growth of 37% to 39%, in 2021. Through the first nine months of the year, the company reported earnings per share (EPS) of $0.08, compared to an EPS loss of $0.85, year over year. The most important thing is that the company increased pump shipments in the third quarter by 43% over the same period last year, meaning it is setting itself up for long-term revenue growth as the pumps lead to additional sales of cartridges and renewal pumps, Tandem said in its third-quarter earnings call.

The company makes one of the smallest insulin pumps on the market, the t:slim X2, and it has been gaining market share, along with its Control-IQ technology, which is compatible with smartphone apps. Since Control-IQ's launch in the U.S. in the first quarter 2020, the number of patients using the technology has risen to 200,000, the company said. Tandem said it expects to end 2021 with a compound annual growth rate (CAGR) of 54% in revenue since 2018, plus a increase of 500 basis points in gross margin and 2,300 basis points in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) over that time period.

And there's still plenty of room to grow. According to statistics from the International Diabetes Federation, there are 537 million people ages 20 to 79 living with diabetes, and that number is expected to increase to 783 million by 2045. In the United States, it is the seventh leading cause of death, according to the Centers for Disease Control and Prevention, although it says that the number of diabetes-related deaths is likely underreported. The company's insulin pumps work well with modern continuous glucose monitoring systems that are becoming increasingly popular because they work without the need for needles.

Now what

Tandem's stock, with a price-to-earnings ratio of 430.08, certainly isn't cheap, so to continue to be a good investment, the healthcare stock needs to continue its run of revenue growth. Over the past five years, quarterly revenue has risen 846.6%. The company believes that the entire diabetes market is ready for greater adoption of insulin pumps.

There's little question that diabetes equipment such as insulin pumps is a growth industry, but there's also plenty of competition, so Tandem's continued expansion will depend on its innovation as the pumps become smaller and more sophisticated.

Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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