DexCom (DXCM 2.23%) has revolutionized the lives of people suffering from diabetes. The company introduced the first real-time continuous glucose monitoring (CGM) system back in 2006, raising the standard of care for a generation of patients.
DexCom's robust business performance is reflected in its surging stock price. Over the past year, shares have climbed by roughly 38%. That's impressive in its own right, but zooming out highlights even stronger growth: shares are up 482% over the past five years and have gained a mind-boggling 4,550% over the course of the past decade.
On Friday, DexCom announced plans to split its shares for the first time in company history. The announcement came on the heels of 20-for-1 stock split announcements from tech giants Alphabet and Amazon. The news is causing some investors to take a fresh look at the medical device maker. Let's recap just how a stock split works and what it means for existing and potential DexCom investors.
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The details
DexCom's board of directors approved a 4-for-1 stock split. If supported by shareholders at the company's annual meeting on May 19, the split will amend DexCom's Restated Certificate of Incorporation and increase the total number of shares from 200 million to 800 million.
Assuming the measure passes, shareholders of record as of May 19 will receive three additional shares of stock for each share they own. DexCom is currently trading at roughly $480 per share; post-split, investors will hold four shares worth roughly $120 each. The stock is expected to begin trading on a split-adjusted basis on June 10.
Investors won't have to take any other action in order to receive their additional DexCom shares. Brokerages handle all the details behind the scenes so that additional shares will simply appear in investors' accounts. It's worth noting that the newly issued shares might not be available immediately on June 10. Timetables can vary slightly from brokerage to brokerage, so it can often take several days for the new post-split shares to be reflected in investors' accounts.
How do investors benefit from a stock split?
From a mathematical standpoint, the total value of shares held by each investor will not change. One share of DexCom stock currently fetching $480 will be worth the same amount as four post-split shares priced at $120 (4 x $120 = $480). Imagine a pizza: it doesn't matter whether it's sliced into eight or 16 pieces, so long as the size of underlying pie remains the same.
Common thinking on Wall Street suggests that stock splits increase demand for a company's shares. This comes down to investor psychology: some potential buyers who are hesitant to shell out nearly $500 for a single stock may be more willing to pick up shares that trade closer to $100. History suggests, however, that the long-term impact of stock splits are outweighed by a company's actual performance. The good news for investors is that DexCom's business performance is impressive.
Does this mean DexCom stock is a buy?
Investors shouldn't buy DexCom stock simply because the company has initiated a stock split. But there are other reasons to consider investing in this medical device maker. The company's most recent financial report lays out a pretty compelling case.
In 2021, DexCom generated revenue of $2.45 billion, up 27% year over year. At the same time, its adjusted operating income of $266 million was consistent with numbers from the year prior. These results came even as the company invested heavily in the launch of its hospital-based CGM system, which was granted a breakthrough device designation earlier this month by the Food and Drug Administration.
DexCom appears poised to continue its growth. In mid-March, the company's most recent CGM device, the DexCom G7, received the Conformitè Europëenne (CE) Mark, allowing for sales within the European Union. The company plans to launch the DexCom G7 in Europe within the next several weeks.
The Centers for Disease Control and Prevention reports that more than 415 million people worldwide are living with diabetes. That number is expected to exceed 500 million by 2040. DexCom pioneered CGM technology, becoming a global medical leader in the process. Given the large and growing market of patients who could benefit from its devices, DexCom lands squarely in the buy column.
