Last year, the Nasdaq Composite experienced a downturn due to a combination of negative economic and political factors. Even though some of these issues are still present, bear markets typically last less than a year. So there is a decent chance that equities will start a rally at some point in 2023, although that's not a guarantee.
At any rate, economic issues won't last forever, and the market will eventually continue its march forward. Buying shares of companies that are well-positioned for long-term growth is essential for investors looking to earn consistent outsized returns. One growth stock that can help with that is none other than DexCom (DXCM 1.26%).
Let's see why the medical device specialist has the tools to outperform the market.
Pioneering an innovative technology
DexCom is a healthcare company laser-focused on the diabetes care market. It has developed newer versions of its G series continuous glucose monitoring (CGM) systems, which help diabetes patients manage their health by closely keeping track of their blood sugar levels. DexCom currently makes revenue from its G6 CGM system, whose rapid adoption over the past few years has led to solid top line growth for the company.
DXCM Revenue (Quarterly) data by YCharts
DexCom's revenue increased by 18% year over year in the third quarter to $769.6 million. On the bottom line, DexCom's net income jumped by about 16% year over year to $101.2 million.
It's not hard to see why diabetes patients continue to be attracted to CMG devices like the G6. These machines can make measurements every five minutes -- that's up to 288 per day.
How does the alternative stack up? Some patients use blood glucose meters (BGMs), a manual method of measuring blood glucose levels. It's impossible to make nearly as many measurements with BGMs unless one chooses to forego doing anything else during the day. So CGMs have the advantage because they provide a better picture of how patients' blood glucose levels behave throughout the day, which helps them make better, healthier decisions.
BGMs provide a snapshot at a single point in time. It's not a useless strategy, but it is an inferior one, and that's before we mention that this method typically uses painful fingersticks. That helps explain the growth in CGM usage. It is an innovative technology that has the potential to improve the lives of the target market. And the research proves it. Studies have shown that patients using CGMs achieve better health outcomes.
The growth story is far from over
Innovative technologies often take time before completely taking over, even when they are superior to the ones they are replacing. Progress is a slow process. CGM adoption has been rising at a good clip in the past few years, at least based on the financial results of the leaders in the field, such as DexCom. But there is plenty of evidence that there remain substantial opportunities ahead.
For instance, according to some estimates, the CGM market for type 1 diabetes patients was about 45% penetrated as of 2021, with some polls suggesting that it could reach a peak of 74%. But it's important to factor in that the percentage of people with diabetes has been increasing. That unfortunate trend will continue for a while. DexCom can remain a leader in this market by developing newer versions of its device.
The company did exactly that last year. DexCom launched its newest G7 CGM device in Europe. This new version of its G series is 60% smaller, has a faster warmup time, and helped diabetes patients achieve better health outcomes than the G6 in clinical studies. The G7 also earned clearance in the U.S., with its launch expected in the country this year.
Other things could play in DexCom's favor, including broader coverage by third-party payers. But one thing is for sure; the company is far from having peaked. DexCom can continue to deliver solid revenue, earnings, and stock performances for years as it offers its clients innovative products to help them manage this challenging chronic illness.
