DexCom (DXCM -1.95%) is a medical device company focused on the development and commercialization of glucose monitoring systems. On March 25, its stock got a nice little 10% bounce after it announced a pending 4-for-1 stock split. But as commonly happens in such cases (and this has been especially true during this bear market) that pop shortly thereafter turned into a decline.
Investors may benefit if they jump into a stock the moment a split is announced, but oftentimes, between that point and the day the split takes place, the stock price can slide again, and those drops can last for months. Splits get some investors excited, but the reality is they don't change the value of the stock, the company, or its outlook.
So what can we expect from DexCom stock now that its split is complete?
Timing can be important -- and hard to know
It's almost as though stock splits have become a mind game for those willing to take on more risk, or for those who might be less educated about investing. The thought process is, apparently: "The stock will split; more people will be able to buy it after it becomes less expensive; I'll get my shares now before the split." But in cases where the company might have no other positive news to accompany the split, that's less investing and more like gambling.
DexCom's split was completed on June 10. Investors who owned shares worth $296 each when they went to bed on June 9 had four times as many shares in their portfolios, worth $74 apiece, when the market opened on June 10. The total value of their holdings didn't change.
But for those who bought the stock between March 25 through April 1 -- just after its run-up -- and have held onto the shares ever since, it's a different story. They are sitting on an average unrealized loss of roughly 39%.
Although that's not always the case, it's an example of what can happen when investors make ill-timed purchases based on hype. But will the now-completed split help lift DexCom's stock? The short answer is, a rally is underway, but it's not connected to the stock split. Long-term investors have more fundamental reasons to be excited.
Good news for DexCom investors
One look at DexCom's website and you know the company has something going for it -- pop star Nick Jonas is front and center as a spokesperson. But in all seriousness, the product he helps promote is the company's G6 continuous glucose monitor system, which allows diabetes sufferers to better manage their disease and maintain healthier lifestyles.
Sales of the G6 during the first quarter helped the company improve its revenue by 25% year over year, driven by volume growth and the addition of new customers. For the full year, the company expects to grow revenue by 15% to 20%.
The first quarter also provided two more reasons to get excited about DexCom's pipeline. First, the company received the CE Mark for its G7 system -- the European Union's certification that it meets the bloc's health, safety, and environmental requirements, and can be sold there. This more advanced version of the G6 is 60% smaller, accommodating less obvious insertion locations, and offers more rapid response with improved data accuracy.
The launch of the G7 in Europe is underway, and when the company reports its Q2 earnings in late July or early August, it could shed some light on how well it is being adopted by patients and medical personnel. CEO Kevin Sayer anticipates the G7 having a growing impact in the second half of this year through international launches. He has also stated that he expects FDA approval for the device this year.
The second product in the pipeline for 2022 is DexCom ONE. This system is similar to the G6 and G7 systems in that it uses a sensor in lieu of painful fingersticks to read blood sugar levels. DexCom ONE also has a water-resistant sensor that transmits data to a connected smartphone every five minutes. The main difference is that this system uses an app without the bells and whistles of the G6 and G7. A user can program alerts, but it does not allow for sharing data in real-time with family members or healthcare providers.
The lower-priced offering should help expand DexCom's user base. The company's strategy includes expanding DexCom ONE into more countries beyond Spain and the U.K., where it is already available. In addition, the company is hoping for an FDA device designation that will bring the CGM system into the inpatient setting of hospitals, which would provide it with a new path to boost revenue.
Is it time to buy?
I'm less concerned about whether DexCom's pipeline and strategy can justify buying the stock now, and more concerned about when the market will provide the best opportunity. If you're an investor who buys and holds for the long term, it's worth noting that DexCom's stock price is down 52% since Nov. 8 to a level not seen since spring 2020.
It's possible the share price could creep still lower during this bear market, but the glucose monitoring device market is expected to grow at a compound annual rate of 8.8% for the next eight years, and regardless of economic conditions, foregoing medical care for chronic conditions is not an option that many will choose.
That should mean that as DexCom launches multiple products and expands its footprint, it should prosper, and so should its stock. If analysts' price targets are any indication, that could lead to a 56% gain from the current $77 price.
